These Industrials Keep Cranking Out Dividends
Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
An old stock market adage that I tend to agree with is that when it comes to investing, boring is good. If you go through a list of the best-performing stocks of all time, you’ll find commonalities among many of the featured companies. More often than not, the companies that have richly rewarded shareholders for the longest have come from industries that are less than exciting.
That’s why the industrials sector contains so many great businesses that have enriched their shareholders over the past decades. Companies within the industrial sector certainly don’t have exciting businesses. They aren’t likely to be featured in the financial media as the next major growth story. At the same time, they provide necessary functions to our society. They manufacture and distribute real, tangible things that contribute heavily to the economy.
If you’re an investor who focuses on cold hard cash instead of flash-in-the-pan ideas, these boring old industrials may be just what you need to provide your portfolio with a dose of (highly profitable) reality.
Building a fortress of dividends, one brick at a time
Diversified global industrial manufacturer Dover (NYSE: DOV) has an incredibly impressive track record. Last year, the company raised its dividend 11%, representing the 57th consecutive year of a dividend increase. That record is the fourth-longest streak of dividend increases of any publicly listed company according to Mergent.
Of course, no company can maintain this kind of streak without the supporting underlying fundamentals, which Dover has. Dover's full year 2012 revenue and diluted earnings per share from continuing operations climbed 10% and 11%, respectively, versus the prior year.
Emerson Electric last raised its dividend in the fall of 2012. Emerson has a fantastic track record of raising its dividend for 55 consecutive years. Its most recent dividend raise was a nearly 3% bump, to its current level of $1.64 per share, representing a 3% yield at recent prices.
Emerson Electric epitomizes the slow-and-steady nature of highly profitable industrials that allow investors to simultaneously sleep well at night and build sustainable wealth over many years.
Emerson recently reported 3% underlying sales growth over the first half of the fiscal year, along with 12% growth in diluted EPS over the same period. For the full year, management expects modest underlying sales growth of 1.5% to 2.5%, and 3% to 6% earnings per share growth for the year.
For its part, Illinois Tool Works celebrated its 100th anniversary last year. To celebrate the occasion, the company provided investors with a 6% dividend increase to its current level of $1.52 per share annualized, representing a current yield near 2.5% for new investors.
Illinois Tool Works reported diluted earnings for the most recent fiscal year soared 45%, as a result of lower expenses and a reduced number of shares outstanding.
In addition, Illinois Tool Works saw its strong performance continue into the first quarter. GAAP diluted earnings per share from continuing operations rose another 6%, and the company’s operating margin improved 60 basis points versus the same period one year ago.
Going forward, investors can expect good things to come from Illinois Tool Works. The company is targeting 2013 full-year revenue growth of 3% to 5% year over year, and a $4.25 per-share midpoint of diluted earnings for the fiscal year. As a result, it’s likely the company will provide investors another dividend increase later this year.
Consider these industrial-strength dividends
None of these companies are likely to be the market’s sexiest new ideas, but at the same time, they have important similarities among them: long histories of financial success, a demonstrable track record of growth, and generous dividends. If your portfolio needs a dose of reality, take some time to get to know these diversified industrials.
Dover, Emerson Electric, and Illinois Tool Works have each played a huge part in building America, and will continue to do so for the foreseeable future. Each represents a well-run company with solid underlying businesses. In addition, these stocks are extremely shareholder-friendly and are committed to returning meaningful cash to investors via regular dividend increases.
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Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Emerson Electric Co. and Illinois Tool Works. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!