Dividends from Industrial Giants
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The technology industry has for years profited from helping companies operate more efficiently. IT isn't the only place where efficiencies can be found, however, and industrial giants ABB (NYSE: ABB), Emerson Electric (NYSE: EMR), and General Electric (NYSE: GE) all stand to benefit from helping customers do more with less.
Machines for the Future
The computer has allowed companies the world over to dump paper and replace it with computer files. Along with this has come powerful tools to manage the data that has been created. Taken together, IT has been a source of massive savings and process improvement.
However, getting paper out of the work flow isn't the only place where a company can improve performance. Often, streamlining operations means changing manufacturing processes or other physical operations. While computers play a role in that, a different type of company is takes the lead here.
General Electric's lighting unit, for example, helps customers save money by switching to LED lighting. That may sound kind of simple, but it can be every bit as important to the bottom line as installing a new database system to streamline ordering processes. And that's just a small example.
Three dividend paying industrial giants that income investors should look at are:
ABB is based in Switzerland, but operates in more than 100 countries around the world. It breaks its operations into five segments: Power Products, Power Systems, Discrete Automation and Motion, Low Voltage Products, and Process Automation. All represented around 20% or so of the top line in 2012 except Low Voltage Products, which was just 16%.
Taken as a whole, ABB makes everything from circuit breakers to robots, but has a specialty in dealing with energy. Management has done an excellent job of expanding its presence around the world, and now generates almost half of revenues from emerging markets. That should be a strategic strength going forward as these nations industrialize. However, it is still a fierce competitor with a notable position in mature markets.
ABB's dividend is less than 10 years old, but management has shown a commitment to annual increases. With a strong balance sheet, notable emerging market exposure, and a 3% dividend yield, the company is worth consideration by conservative income investors.
Emerson breaks its business down into five units: Process Management, Industrial Automation, Network Power, Climate Technologies, and Commercial and Residential Solutions. The first three segments make up about 75% of sales. Emerging markets were about 36% of the top in 2012, with a near-term goal of increasing that to 40% by 2015.
While Emerson took a top-line hit because of the 2007 to 2009 recession, management used the downturn and slow recovery to fine tune its business around the edges. For example, it sold three businesses in 2010 and 2011 and added several in 2011 and 2012. While none of the moves were material, they strengthened the company's suit of offerings and culled out underperformers.
It is this type of activity that has led to more than 50 consecutive years of annual dividend increases. It's also led to a premium valuation. However, a near 3% dividend yield is compelling reason to own an industrial giant that is constantly positioning itself for the future.
ABB and Emerson are both solid companies that continue to perform at the top of their game. General Electric, on the other hand, allowed its finance arm to tarnish its name in the recession. It got so bad that GE took a government handout and cut its dividend.
Management has made a concerted effort to refocus on its industrial business in recent years, de-emphasizing finance and selling non-core assets like NBC. Today, the company breaks its business down into Power and Water, Oil and Gas,Energy Management, Aviation, Healthcare, Transportation, Home and Business Solutions, and GE Capital. It is making a concerted effort to reduce the size of its finance arm.
This is, basically, a turnaround story. In fact, GE's industrial businesses were never really a problem. So the opportunity is to get in at a still relatively depressed price as GE refocuses and rebuilds trust. The 3% yield is a solid reason to stick it out.
ABB, Emerson, and GE all help companies work smarter through technology. They may not be as exciting as Google, but businesses wouldn't run as well without them. And conservative investors would do well to consider adding any of these names to their portfolios.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Emerson Electric Co. The Motley Fool owns shares of General Electric Company. 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!