In this article we will take a look at 10 best industrial dividend stocks for 2021.
The coronavirus crisis has hammered the global economy. Countries facing their second or even a third waves of the pandemic are still struggling to get their economy back on track. Some, despite the second wave, have shown reasonable success. Excluding the two sharp swings (-31.4% in 2nd quarter, 2020 and +33.4% in 3rd quarter, 2020), the fourth quarter GDP in the US registered 4.1% growth.
Massive liquidity injection helped Wall Street beat the COVID blues and climb past pre-COVID levels to report new highs. As the appetite for risk assets has risen so has the concerns of high valuations.
Best Industrial Dividend Stocks For 2021
Investors looking for total return in equities tend to seek dividend-paying names. Dividends as the income component of stocks provide a limited cushion against adverse price movement. According to a RidgeWorth Investments report, compounded dividends on average accounted for approximately 50% of stock total returns from 1930 until 2010. The report highlighted the performance cushion dividends provided during difficult economic periods like 1930s, 1970s and 2000s. Dividend payments are arbitrary and depend upon company’s cash flow. Therefore, a company declaring dividend is deemed to have sufficient free cash flow even if it has an operating loss. Dividend-paying stocks provide sustainable yield compared to the ones that do not. They also indirectly compete against the bonds that provide some yield but have somewhat limited gain potential.
Most beginner investors like to look for high dividend-paying stocks. Hunting for unusually high dividend is not a recommended exercise as companies focused on returning cash to shareholders end up avoiding capital expansion. This could cost them opportunities in potential future growth projects. Instead, it’s better to focus on companies which offer consistent dividend hikes, without any cuts or suspensions.
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Income investing has become extremely important as volatility in the markets is rising. Even the smart money is losing its returns. The hedge fund industry is losing ground amid severe losses. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
In this article we identify 10 best industrial dividend stocks for 2021. These stocks not only pay dividends but have also increased their dividends for at least 15 consecutive years. The list consists of companies that have consistently dividends and have strong earnings growth prospects. These companies have balance sheets strong enough to absorb short-term economic shocks and uncertainties.
Let’s start our list of the 10 best industrial dividend stocks for 2021.
10. L3Harris Technologies, Inc. (NYSE: LHX)
Dividend Yield: 2.14%
L3Harris Technologies, Inc. is a Florida-headquartered American technology company, defense contractor, and information services provider. With a workforce of 50,000 spread within the US and across a dozen countries overseas, the company produces host of wireless equipment, tactical radios and C6ISR systems. The company provides vital communication technology in the defense, maritime and space, among others, sectors. It provided the avionics and communication technology to Nasa for a critical link to control the Perseverance Rover after its landing on Mars. The company has recently sold its military training and combat propulsion systems businesses for $1.45 billion.
The stock is up 13.41% over the last 12 months.
9. Northrop Grumman Corporation (NYSE: NOC)
Dividend Yield: 1.90%
Founded in 1939, NOC is the 9th best pick in our list of 10 best industrial stocks to buy for 2021. With 90,000 employees, and an annual revenue in excess of $30 billion, NOC is a leading American global aerospace and defense technology company. As one of the largest weapons manufacturers and military technology providers, NOC primarily operates through four business segments: Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems.
The median dividend growth rate for NOC for the past 13 years has been 11.20%. Credit Suisse, Morgan Stanley, and Susquehanna have reiterated their overweight position on the stock in 2021. The stock is down -5.31% over the last 12 months.
8. Waste Management, Inc. (NYSE: WM)
Dividend Yield: 1.87%
Houston, Texas-based Waste Management is a leading American waste management, comprehensive waste, and environmental services company serving clients in North America. WM operates the largest landfill network in the US and Canada, and generates high free-cash-flow. The consumer spending growth in the US on the back of economic growth is guaranteed to yield waste growth. With the environment being one of the core focus areas worldwide, WM has a recession-resistant business model.
Ethisphere has rated WM as one of the 2021 world’s most ethical companies for the 12th time. The stock is up 19.96% over the last 12 months.
7. Emerson Electric Company (NYSE: EMR)
Dividend Yield: 2.27%
Founded in 1890, EMR – an American multinational corporation – is a Fortune 500 constituent. The company designs and manufactures technology and engineering products for industrial, commercial, and consumer markets worldwide. Its main operational segments include Automation Solutions, and Residential & Commercial Solutions.
EMR has been beating earnings estimate consensus in the recent quarters resulting in analysts’ upgrades. The stock is up 116.48% over the last 12 months.
In one of their investor letters, Fiduciary Management highlighted a few stocks and Emerson Electric Co (NYSE:EMR) is one of them. Here is what Fiduciary Management said:
“Emerson Electric offers a wide range of products and services primarily in the areas of Automation, HVAC & Refrigeration, and Construction. The company is comprised of Automation Solutions, Climate Technologies, and Tools & Home Products. Emerson has market-leading positions thanks to their domain knowledge, innovation (differentiated technology), and services & solutions capability to address complex challenges in critical markets. Automation Solutions enable customers to maximize production while reducing costs, and Climate Technologies improves energy efficiency, enhances comfort, and protects food quality. Although a cyclical company, nearly 40% of total sales come from the maintenance, repair and optimization portion of Automation Solutions (significant installed base). The replacement nature of Climate Technologies also helps this part of the business be less cyclical in a downturn. In addition to contingency plans in the current economic environment, the company’s balance sheet is positioned very conservatively (strong investment-grade credit) and they have plenty of liquidity. With a compelling valuation, we feel that Emerson is an attractive investment opportunity over our time horizon.”
6. Illinois Tool Works, Inc. (NYSE: ITW)
Dividend Yield: 2.09%
Founded in 1912, ITW is an American Fortune 200 company that produces engineered fasteners and components, equipment and consumable systems, and specialty products worldwide. ITW’s seven industry-leading segments leverage the company’s differentiated and proprietary business model to generate solid growth and best-in-class margins and returns.
ITW is a high-beta stock, with analysts’ estimating a 38% profit growth over the next couple of years, coupled with expected higher free-cash-flow. The stock is up 54.15% over the last 12 months.
5. CSX Corporation (NASDAQ: CSX)
Dividend Yield: 2.14%
CSX is an American holding company, and together with its subsidiaries, is focused on rail-based transportation services and real estate. The company offers rail services, transportation of intermodal containers and trailers, as well as other transportation services including rail-to-truck transfers and bulk commodity operations. As a leading transportation company, CSX has the largest rail system in the eastern US. CSX operates approximately 19,500 route mile rail network, serving various population centers in 23 states east of the Mississippi River, the District of Columbia, and the Canadian provinces of Ontario and Quebec.
The company’s earnings have grown 13% annually for the past five years. As CSX has managed to grow earnings at a rapid pace, it has also reinvested bulk of the profits for business expansion. CSX is a Fortune 500 company.
The stock is up 80.38% over the last 12 months.
4. Automatic Data Processing, Inc. (NASDAQ: ADP)
Dividend Yield: 2.14%
Founded in 1949, ADP is a comprehensive global provider of cloud-based Human Capital Management solutions and Business Process Outsourcing (BPO) services, analytics and compliance expertise. Industry analyst firm Everest Group has mentioned ADP as a leader in its 2021 Multi-Process Human Resources Outsourcing PEAK Matrix Assessment for the 10th successive year.
ADP has beaten analysts’ revenue and earnings estimates in the recent quarters, which prompted a slew of earnings upgrade. The stock is up 60.10% over the last 12 months.
Polen Focus Growth in their Q4 Investor Letter said that Automatic Data Processing, Inc. (NASDAQ: ADP) was one of the top detractors for the fund during the fourth quarter of 2020. Here is what Polen Focus Growth has to say about Automatic Data Processing, Inc. in their investor letter:
“For ADP, we detail our decision to sell our position in the third quarter letter. The very high levels of unemployment in the U.S. and extremely low interest rates have negatively impacted the business in the short term. At the same time, increasing competitive intensity in the human capital management industry is creating headwinds.”
3. Lockheed Martin Corporation (NYSE: LMT)
Dividend Yield: 2.14%
Formed by the merger of Lockheed Corporation with Martin Marietta in 1995, the Maryland, USA-headquartered LMT is a global security and aerospace company that employs around 110,000 people worldwide. The company is primarily engaged in the research, design, development, manufacturing, integration and sustainment of advanced technology systems, products and services. LMT’s four main business segments include Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.
LMT has exceeded earnings estimate consensus in the recent quarters and its profit. The trailing 12-month PE ratio of 13.62 versus the S&P 500 PE of 27.48 makes LMT more attractive on absolute basis. Additionally, its PE compares favorably with the Zacks Aerospace sector’s 12-month trailing PE ratio of 53.70 making it cheaper than its peers on relative basis as well. LMT is a Fortune 500 name.
The stock is up 4.12% over the last 12 months.
Ariel Investments, in their Q4 2020 investor letter, emphasized their Lockheed Martin Corporation (NYSE: LMT) position. Here is what Ariel Investments has to say about Lockheed Martin Corporation in their Q4 2020 investor letter:
“Lockheed Martin Corporation declined -7% in the quarter. Generally, the market expects less defense spending under Democratic administrations. Furthermore, defense stocks are considered “safe/non-cyclicals” less harmed by the COVID-19 economic downturn and less buoyed by an economic reopening. As a result, Lockheed outperformed the market as we went into the downturn in March but underperformed as we rallied in the fall and winter.”
2. 3M Company (NYSE: MMM)
Dividend Yield: 2.14%
The 3M Company is a Fortune 500 as well as Dow Jones Industrial Average constituent. The American multinational conglomerate operates in the fields of industry, worker safety, US healthcare and consumer goods. Its wide range of products include abrasives, adhesive tapes and related products. Its worldwide operations of development, manufacture and marketing have four business segments: Safety and Industrial, Transportation and Electronics, Healthcare, and Consumer. The stock is up 36.37% over the last 12 months.
3M is mentioned in Insider Monkey’s list of 30 best dividend kings for 2021.
1. Raytheon Technologies Corporation (NYSE: RTX)
Dividend Yield: 2.14%
On top of our list of the 10 best industrial dividend stocks for 2021 is Raytheon Technologies Corporation. The Massachusetts, USA-headquartered RTX is an American multinational conglomerate. The company is one of the largest aerospace, intelligence services providers, and defense manufacturers in the world by revenue and market capitalization. It provides advanced systems and services for commercial, military and government customers. RTX’s principal US government customer is the U.S. Department of Defense (DoD). The merger of Raytheon and United Technologies (manufacturer of Pratt & Whitney engines) in April, 2020 combined two companies with distinctive legacies in transformative technologies. With 195,000 employees worldwide, RTX clocked $98 billion in revenues in 2020.
As the commercial aviation business is expected to embark on a multi-year recovery, Wall Street analysts expect company’s free-cash-flow could reach $8-9 billion over the next few years. The current price to FCF ratio of around 15-17 makes RTX an attractive value stock.
The stock is up 67.07% over the last 12 months.
You can also take a peek at 10 Best Semiconductor Stocks to Buy in 2021 and 15 Most Valuable Australian Companies.
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This article is originally published at Insider Monkey.
