Build Diversity: Part 1 Industrials

02 Mar 2014 18:02
Tags build_diversity industrials

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Back in January I did a post on Regional Banks and it inspired me to start a new blog series called “Build Diversity”. Many naysayers to the dividend growth strategy continually state that the selection of dividend growth companies is very limiting and the largest risk is lack of diversification. This blog series is intended to disprove naysayers and help a new investor identify potential DGI companies while building a diversified portfolio.

All stock information will be culled from David Fish’s “Dividend Champions List” at http://dripinvesting.org/ which provides a list of all stocks that have continually grown their annual dividend payouts for 5 years or more in a row

To kick-off the series we will start with industrials. Industrials have never been known to rock the world with stellar high dividend yields but what they lack in yield they make up in large dividend growth increases year to year.

To start with a list we will use basic search criteria of:

  • min div yield near 2% or greater
  • payout ratio less than 65%
  • debt to equity ratio less than 1
Company Symbol Yrs of Div Growth Div Yield Payout Ratio TTM P/E Debt/Equity
3M Company MMM 56 2.67% 52.53% 19.69124424 0.32
Applied Industrial Tech AIT 5 1.98% 36.90% 18.64 0.00
Crane Company CR 9 1.90% 32.61% 17.16 0.29
Cummins Inc. CMI 8 1.97% 33.11% 16.81 0.25
Emerson Electric EMR 57 2.61% 61.87% 23.72 0.53
Illinois Tool Works ITW 39 2.13% 34.85% 16.36 0.49
Stanley Black & Decker SWK 46 2.58% 55.10% 21.32 0.67

Our search yielded 7 great stocks and each brings something special to the table. The highest yielding stocks (MMM, EMR, ITW, SWK) are also the elder statesman with a minimum of 39 years of consecutive annual dividend growth. But our young guns (AIT, CR, CMI) bring low payout ratios, debt/equity, and P/E ratios.

Company 1 Yr DGR 3 Yr DGR 5 Yr DGR 10 Yr DGR
3M Company 7.63% 6.55% 4.90% 6.76%
Applied Industrial Tech 9.52% 12.86% 8.92% 15.74%
Crane Company 7.41% 10.49% 8.83% 11.23%
Cummins Inc. 25.00% 37.00% 30.26% 22.32%
Emerson Electric 3.11% 7.13% 6.18% 7.71%
Illinois Tool Works 6.85% 7.10% 6.29% 12.87%
Stanley Black & Decker 10.00% 13.90% 9.46% 6.75%

Looking at average dividend growth all candidates have shown impressive long term averages and Cummins is really knocking it out with a 10 year average of 22%. But, seeing averages can be misleading. Looking at year to year growth, especially during the 2008/2009 market crash, could be more telling on how well these companies react to adversity.

INDUS_CHART.png

Of the 7 companies, only AIT failed to raise their dividend during the crisis in 2009. While impressive for the remaining companies the most impressive was CMI with a whopping 16% as well as Illinois Tool Works & Emerson Electric providing more than 7% growth though both did slowdown in the following year to only 2.42% & 1.89%.

Our quick look at Industrials have yielded some nice examples to add to your portfolio. Results yielded low risk long term dividend payers like 3M and also offers some rapid growth like Cummins Inc. Like any investment you should research further before purchasing any equity as this report is nothing more than a result of some surface level values and ratios.

3M Company (MMM): 3M Company operates as a diversified technology company worldwide. Its business segments include: General Industrial , Safety and Graphics, Electronics and Energy, Health Care, an Consumer Markets.

Applied Industrial Tech (AIT): Applied Industrial Technologies, Inc. distributes industrial products for maintenance, repair, and operational needs, as well as original equipment manufacturing

Crane Company (CR): Crane Co. manufactures and sells engineered industrial products in the United States and internationally. It operates in four segments: Aerospace & Electronics, Engineered Materials, Merchandising Systems, and Fluid Handling.

Cummins Inc. (CMI): Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, and engine-related component products. It operates in four segments: Engine, Components, Power Generation, and Distribution.

Emerson Electric (EMR): Emerson Electric Co., a diversified technology company, designs and supplies products and technology, and delivers engineering services and solutions to the industrial, commercial, and consumer markets worldwide.

Illinois Tool Works (ITW): Illinois Tool Works Inc. produces and sells engineered fasteners and components, equipment and consumable systems, and specialty products. The company operates through seven segments: Automotive OEM; Test & Measurement and Electronics; Food Equipment; Polymers & Fluids; Welding; Construction Products; and Specialty Products.

Stanley Black & Decker (SWK): Stanley Black & Decker, Inc. provides power and hand tools, mechanical access solutions, and electronic security and monitoring systems for various industrial applications.

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