Raytheon and United Complete Merger; Dividend Investors Expected to be Kept Whole with 2-3% Yield
Earlier this month Raytheon completed its all-stock merger with United Technologies, forming Raytheon Technologies (RTX).
Several weeks before the merger closed, United Technologies executed the spin-offs of its Otis (OTIS) elevators and Carrier (CARR) building systems businesses.
United Technologies stock remained outstanding but the company changed its name to Raytheon Technologies and its ticker symbol to RTX.
Since Raytheon Technologies has not yet reported financial results, please note that the financial data shown on our website (and most others) reflects United Technologies' past information, including its dividend.
Raytheon Technologies will issue its first earnings report on May 7 and hasn't communicated yet what its precise dividend will be going forward.
However, management previously said that income investors would be kept whole.
In other words, the combined dividends paid across Otis, Carrier, and Raytheon Technologies are expected to at least equal the dividends paid by United Technologies and Raytheon before the spin-offs and merger.
Based on our back-of-the-napkin math below, we estimate that Raytheon Technologies' annual dividend could be close to $1.60 per share.
That works out to about a 2.5% dividend yield based on RTX's stock price today, not the 4.7% yield shown on our website which reflects United Technologies' old dividend.
Several weeks before the merger closed, United Technologies executed the spin-offs of its Otis (OTIS) elevators and Carrier (CARR) building systems businesses.
United Technologies stock remained outstanding but the company changed its name to Raytheon Technologies and its ticker symbol to RTX.
Since Raytheon Technologies has not yet reported financial results, please note that the financial data shown on our website (and most others) reflects United Technologies' past information, including its dividend.
Raytheon Technologies will issue its first earnings report on May 7 and hasn't communicated yet what its precise dividend will be going forward.
However, management previously said that income investors would be kept whole.
In other words, the combined dividends paid across Otis, Carrier, and Raytheon Technologies are expected to at least equal the dividends paid by United Technologies and Raytheon before the spin-offs and merger.
Based on our back-of-the-napkin math below, we estimate that Raytheon Technologies' annual dividend could be close to $1.60 per share.
That works out to about a 2.5% dividend yield based on RTX's stock price today, not the 4.7% yield shown on our website which reflects United Technologies' old dividend.
Previous Raytheon and United Technologies dividends: $3.4 billion
- Raytheon: $1 billion
- United Technologies: $2.4 billion
Less United Technologies spin-off dividends: ($1 billion)
- Otis (OTIS): $450 million
- Carrier (CARR): $550 million
RTX dividend to keep investors whole: $2.4 billion (about $1.60 per share)
In our analysis above, we estimated Otis and Carrier's dividends based on management's payout ratio guidance (40% for Otis and 30% for Carrier).
If Raytheon Technologies pays out $2.4 billion in dividends, that would represent a free cash flow payout ratio of about 40% based on their 2019 results, a reasonable level.
Without knowing the stock's official dividend amount or having updated financials for the combined company to work with, we are unable to provide a Dividend Safety Score for Raytheon Technologies at this time.
Once more information becomes available we expect to initiate coverage, with a Safe rating being the most likely outcome.
This would reflect Raytheon Technologies' large install base which generates predictable and high-margin service revenue, plus the firm's reasonable financial profile, which includes an A- credit rating from Standard & Poor's.
With that said, the near-term outlook isn't so rosy. Raytheon Technologies faces unprecedented headwinds in the commercial aerospace market (46% of sales) as the coronavirus pandemic has crippled travel demand, dealing a major blow to aircraft manufacturers such as Boeing and their suppliers.
We will continue monitoring the situation but wanted to explain the various moving parts to Raytheon Technologies' dividend profile prior to its first earnings report in several weeks.
