The 10 Best Industrial Sector Dividend Stocks Today

Dividend stocks are a great way to build wealth in the long run, as dividend payments are one of the key factors for a stock’s total returns. This is also why the Dividend Aristocrats and Dividend Kings outperformed the broad markets repeatedly. Dividend stocks also are able to generate a relatively reliable income stream that can finance or supplement one’s livelihood.

Many traditional dividend stocks are from the healthcare and consumer staples industries, which generally aren’t very cyclical and where dividend payouts can thus be very consistent. But there are attractive dividend stocks in other sectors as well. In this article, we will take a look at the 10 dividend stocks from the industrial sector in the Sure Analysis research database with the highest expected returns over the coming five years.

Industrial companies oftentimes face more cyclical demand for their products, but when they establish themselves in a niche or build out best-of-breed technology they can be highly profitable, which makes them attractive as an investment.

Industrial Dividend Stock No. 10: Pentair PLC (PNR)

Pentair is a diversified industrial company that operates in three fields: Water Quality, Flow & Filtration and Technical Solutions. The company, which is valued at $8 billion, has raised its dividend for more than 40 years in a row, making it one of the Dividend Aristocrats. The Dividend Aristocrats are a select group of 53 stocks in the S&P 500 Index, with 25+ consecutive years of dividend increases. You can download an Excel spreadsheet of all 53 (with metrics that matter) by clicking the link below:

Pentair was recently split, as nVent Electric was a part of Pentair until spring 2018.

Pentair produced a solid earnings growth rate of about 6% since 2008. For fiscal year 2018 Pentair forecasts earnings-per-share of $4.00 (before the spin-off of nVent Electric), which would mean an increase of 13% from the prior year’s level.

Pentair has already started the year positively, achieving earnings growth of more than 30% on operating income growth of 13%.

PNR Performance

Source: Pentair Investor Presentation

Pentair split with nVent Electric in April, going forward profitability will thus be lower. Analysts are forecasting earnings-per-share of $2.30 for the current year right now, as the impact of nVent Electric is backed out. Based on a share price of $44 shares are changing hands at 19 times this year’s earnings right now, which is relatively in line with the historic valuation.

Pentair has strong fundamentals, which include a low debt to asset ratio and solid interest coverage, and Pentair has high-quality, experienced management that has guided the company through the decades very successfully.

We estimate that Pentair will grow relatively in line with its historic growth rate over the coming years, which is by far not the highest growth of the companies in this report, but a mid-single digits growth rate is not bad, either. Our estimate for total returns over the coming five years is about 8% — 6% from earnings growth, 1.5% from the company’s dividend payments and a small benefit from possible multiple expansion.

Industrial Dividend Stock No. 9: ABM Industries (ABM)

ABM Industries is a company that provides facility solutions such as janitorial services, electrical & lighting, HVAC and medical, landscape & turf, parking, facilities engineering. ABM Industries owns a wide network of more than 350 offices across the U.S. and Canada and employs more than 130,000 people.

ABM Industries produced very strong growth in the most recent quarter, increasing its revenues by 20% year over year (to $1.58 billion), although its profits per share declined from $0.49 to $0.47 over the last year. The acquisition of GCA Services Group, which closed in September 2017, was a key factor for revenue growth, organic revenues would have been up by 3% during the most recent quarter.

ABM Results

Source: ABM Industries’ Investor Presentation

ABM Industries has been very consistently producing positive earnings growth, as the last year with negative earnings growth was 2003 – even during the last financial crisis, ABM Industries managed to increase its profitability. The industry ABM Industries is active in is not a high-growth industry, though, which is why the past earnings growth rate was in the mid-single digits only.

ABM Industries’ fundamentals have gotten a bit worse over the last decade, primarily its leverage (liabilities to assets) has been increasing. Management has stated that savings from the Tax Cuts and Jobs Act will be used towards reducing leverage going forward, which should also help improve the company’s interest coverage ratio. ABM Industries is well positioned versus competitors thanks to its size and scale, and the company has strong relationships with customers that include Google, Facebook, United Airlines, and more.

Going forward we see total returns of about 10% to 11% a year, based on 6% annual earnings-per-share growth, a 2.4% dividend yield, and valuation upside (shares trade at just 15 times this year’s earnings) that could add about 2% a year to the company’s total returns.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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