United Technologies Corporation (NYSE:UTX) is one of the largest, most diversified industrial conglomerates in the world. In this article, we’ll find out why many of the hedge funds in our system are long United Technologies Corporation (NYSE:UTX) and use the latest 13F filing data to determine how those hedge funds are positioned in the stock.
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on, can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see the details here).
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As previously mentioned, United Technologies is a huge diversified industrial conglomerate. In 2015, United Technologies reported sales of $56.1 billion, a number larger than the annual GDP of some small countries, selling everything from Otis elevators, to climate control systems, to military and commercial engines. United Technologies’ broad and diverse portfolio of essential industrial products reduces its risk to the business cycle. When everything seemed to go wrong in 2008 and 2009, United Technologies still reported EPS of $4.90 and $4.12, respectively, more than enough to cover its dividend by several multiples at the time. United Technologies’ large size also provides it with substantial economies of scale that competitors have a difficult time achieving.
United Technologies’ scale and stability ensures that its dividend is very safe. The company has raised its dividend for 22 straight years and has grown its dividend by an average of 8.5% a year for the last five years. In April, United Technologies continued its dividend-raising tradition, hiking its quarterly dividend up by $0.02 to $0.66 per share. That gives United Technologies an annual dividend yield of 2.48%, or around 55% higher than the current 10-year-yield.
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United Technologies’ dividend safety isn’t the only thing to like about the company. United Technologies’ financial results for its second quarter also soundly beat expectations, with the company reporting earnings of $1.82 per share on sales of $14.87 billion, or $0.14 per share and $200 million better than analysts’ estimates. The company’s latest guidance was also strong, with it raising its full-year 2016 adjusted EPS outlook to $6.45-to-$6.60 from the previous guidance range of $6.30-to-$6.60.
Given United Technologies’ long history of dividend raises, its forward P/E of 15.44, and its payout ratio of only 40.1%, it’s not surprising that many hedge funds own United Technologies. Seeing as analysts expect United Technologies’ earnings to rise by an average of 8.24% a year for the next five years, United Technologies will likely maintain its dividend-raising tradition for another half decade or more and offer investors substantial capital appreciation too.
We’ll analyze how hedge funds traded United Technologies in the second quarter on the next page.
In terms of overall activity, 56 funds in our database owned $3.89 billion worth of United Technologies Corporation (NYSE:UTX) shares on June 30, which accounted for 4.50% of the float, up from 51 funds with $3.81 billion in holdings on March 31.
In terms of individual activity, Ken Fisher‘s Fisher Asset Management trimmed its position in United Technologies by 1% during the second quarter, to slightly over 8.36 million shares. Mirroring Fisher Asset Management’s actions were Mason Hawkins‘ Southeastern Asset Management and Ric Dillon’s Diamond Hill Capital, which cut their positions by 7% and 2% respectively, to 6.66 million shares and 3.68 million shares. Going the opposite way was Robert Rodriguez and Steven Romick’s First Pacific Advisors, which raised its United Technologies stake by 8% to 6.86 million shares, which represented 5.93% of the value of the fund’s equity portfolio at the end of June.
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