Keeping Cool With HVAC Dividend Stocks

Investing in boring industries rarely gives your portfolio a “shot in the arm” in terms of dramatic capital appreciation but what it can do is provide stability and predictability in terms of tempered growth and a potential reliable source of dividends for decades on end. One such “boring” industry that rarely gets discussed is the heating, ventilation and air conditioning (HVAC) industry. When you think about it, these HVAC systems surround us every single day whether we live in a house or apartment, work in a high rise building or warehouse. It is these systems that keep us comfortable from the outside elements.

The HVAC industry, as with most industrial sector plays, is very cyclical in nature often moving in lock step with general construction trends. As housing and other building projects boom so do the following companies. During cyclical housing and construction busts, HVAC businesses follow suit as well. With that being said, let’s take an overview of this sector and see if any could be a fit for your long term dividend growth portfolio.

First up, Comfort Systems USA Inc. (FIX). This one hundred year old company has been providing HVAC services and support for office buildings, retail centers, apartment complexes, manufacturing plants, government facilities and more. Currently yielding 1.03% with a very low payout ratio of 16.2%, FIX has plenty of room to continue to pay and raise its dividend. In fact, it has an impressive ten year annualized dividend growth rate of 25.89%. While its current yield may not excite, its dividend growth rate definitely will. FIX currently sports a 17.7 PE which is well below its five year average PE of 33.0. Forward PE comes in at a lower 14.3.

Next, is a familiar name to many as its namesake air conditioning units are installed in many homes across the country, Lennox International, Inc. (LII). Another old time company founded in 1895, LII designs, manufactures, and markets a range of HVAC and refrigeration products for residential and commercial customers. Like FIX, LII offers a relatively small current yield coming in at just 1.15%. This yield is very well covered by current cash flow as its payout ratio is on the small side of just 25.0%. By all accounts, the dividend currently appears to be very safe. If the current yield doesn’t excite perhaps the 12.90% ten year annualized dividend growth rate will. With a current PE of 26.6, LII is priced on the higher end of the valuation spectrum when compared to its five year average PE of 23.5. Forward PE looks more enticing at 19.2.

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Disclosure: Long IR, ALLE, JCI

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