Investing In Pollution Control Systems Companies

Pollution control systems companies are serious businesses that engage in the design, development and implementation of consumer and industrial pollution control products such as air and water filtration systems, dust collectors and various scrubbers. While the business at first glance might scream boredom they do provide very essential services that enhance all our lives.

In fact, pollution control systems have been in the news a lot recently with regard to an irritating factory exhaust emanating from Huy Fong Foods, makers of the popular Sriracha Chili Hot Sauce based in Irwindale, California. For those who are not familiar with the story, sriracha factory neighbors complained about a strong smell and eye and throat irritation as a result of the chili sauce manufacturing process. While the story often made for entertaining headlines, the suffering endured by neighbors was no laughing matter. While lawyers battled out in court over the legal right of Huy Fong Foods to continue to produce its chili sauce, the case essentially centered on the factory pollution control system and air filtration system and scrubbers.

Another example of the importance of the pollution control industry made headlines last week as the South Coast Air Quality Management District in California announced that cancer risk from air pollution dropped in Southern California by as much as 65% since 2005. No doubt this was largely in part of increased regulations, cleaner burning diesel fuels and pollution control systems outfitted on many cars, trucks, cargo ships, locomotives and airplanes.

Of course, being dividend income investors we are most interested in the companies that can pay reliable and rising dividends over time. That being said, let’s review the few dividend paying companies in the pollution control industry.

First up is CECO Environmental Corp. (CECE). Based in Cincinnati, Ohio, CECE provides various air and water pollution control systems as well as pollution recovery services. The company also manufactures and markets components for industrial air systems such as filters and ducting. CECE currently yields 1.80% with a low payout ratio of 24.7% based on current cash flow. While not a high yielding stock, CECE does offer a very safe dividend. I would like to see a longer dividend history with this stock but so far dividends have been increasing steadily since 2011. On a valuation note the stock has a current PE of 36.74 which is high relative to the market as a whole but in line with industry peers. Forward PE looks a lot more enticing at only 11.67.

Next is Donaldson Company, Inc. (DCI). Based in Minneapolis, Minnesota, DCI manufactures and sells various filtration systems. Operating in two distinct segments (engine and industrial), their engine products includes air filters, emissions and exhaust systems for cars, trucks and even your riding mower while their industrial products offers dust, fume, and mist collectors as well as specialized air and gas filtration systems used in the manufacturing process of computer hard drives. See, the pollution control systems industry touches all our lives from cars, trucks, hard drives and even your lawn mower. DCI currently yields 1.60% with a relatively low payout ratio of 37.3%. This stock has experienced and amazing 29 years of dividend growth with a ten year annualized dividend growth rate of 18.38%. This is a stock that every dividend growth investor should consider. The PE for DCI is 22.63 with a more attractive forward PE of 18.35.

Finally, in the pollution control space we have Federal Signal Corp. (FSS). Based in Oak Brook, Illinois, FSS manufactures various street cleaning vehicles as well as sewer cleaning vacuum trucks primarily to municipal and government customers and industrial contractors. FSS currently yields a low 1.00% with a very low payout ratio of just 14.0%. While having a rocky on and off dividend history paying distributions since the 1980s, it does sport a very low PE of 11.69 with a forward PE that’s not much higher. FSS also, provides diversity as it also manufactures fire and rescue safety equipment, sirens, vehicle light bars, emergency vehicles and other first responder products.

Clearly, the choices in this sector are few from a dividend stock perspective. However, one stock in particular emerges as a potential candidate for any dividend income portfolio. DCI, with its long rising dividend history, reasonable yield and low payout ratio along with a decent PE might make any dividend income investor very happy in years to come.

As you can see, we all depend on these companies to detoxify our polluted world. There’s no question that the products and services these companies provide will be needed for decades to come. Have you ever thought about investing in this sector? Please let me know below.