Despite labor shortages, supply chain challenges, and rising inflation, total industrial production increased 1.6% year-over-year in December 2022. Moreover, increasing government initiatives are boosting the sector.
The Bipartisan Infrastructure Law has already provided more than $185 billion in funding for over 6,900 projects, including 2,800 bridge repair and replacement projects.
Furthermore, according to The Business Research Company’s report, the industrial machinery market is expected to grow at a CAGR of 6.7% until 2027. Investor’s interest in industrial stocks is evident from the Industrial Select Sector SPDR Fund’s (XLI) 7.1% returns over the past three months.
Given the backdrop, fundamentally sound industrial stocks Caterpillar Inc. (CAT) and ABB Ltd (ABB) might be ideal buy-and-hold options. These stocks pay reliable dividends.
Caterpillar Inc. (CAT)
CAT manufactures construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. Its segments include Construction Industries; Resource Industries; Energy & Transportation; Financial Products; and All Other.
On January 6, 2023, CAT invested in Lithos Energy, Inc., a battery technology company that makes lithium-ion battery packs. Lithos’ knowledge in developing battery packs for comparable difficult conditions should strategically assist CAT as the firm develops electrified products.
On December 15, 2022, CAT announced a collaboration with Luck Stone, the nation’s biggest family-owned and operated producer of crushed stone, sand, and gravel, to deploy CAT’s autonomous solution at Luck Stone’s Bull Run Plant in Chantilly, Virginia. This should be beneficial for the company.
CAT’s trailing-12-month EBIT margin of 14.81% is 52.3% higher than the 9.73% industry average. Its trailing-12-month net income margin of 11.28% is 75.5% higher than the 6.43% industry average.
CAT has paid dividends for 33 consecutive years. Over the last three years, CAT’s dividend payouts have grown at a 6% CAGR. CAT’s four-year average dividend yield is 2.45% and its current dividend translates to a 1.91% yield.
CAT’s total sales and revenue increased 20.9% year-over-year to $14.99 billion for the third quarter that ended September 30, 2022. Its adjusted operating profit increased 45.6% from the prior year’s period to $2.47 billion. The company’s adjusted profit stood at $2.08 billion, up 43% year-over-year, while its adjusted EPS rose 48.5% from the year-ago value to $3.95.
CAT’s revenue is expected to increase 7.1% year-over-year to $63.65 billion in 2023. Its EPS is expected to grow 11.4% year-over-year to $15.86 in 2023. It surpassed EPS estimates in all four trailing quarters. The stock has gained 24.9% over the past year to close the last trading session at $249.66.
CAT’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CAT has a B grade for Growth. In the B-rated Industrial - Machinery industry, it is ranked #11 out of 82 stocks. Click here for the additional POWR Ratings for Stability, Momentum, Value, Sentiment, and Quality for CAT.
ABB Ltd (ABB)
Headquartered in Switzerland, ABB manufactures and sells electrification, industrial automation, robotics, and motion products for customers of utilities, industry, transport, and infrastructure.
In terms of forward EV/EBIT, ABB is currently trading at 15.24x, 3.1% lower than the industry average of 15.72x
ABB’s trailing-12-month EBIT margin of 11.72% is 20.5% higher than the 9.73% industry average. Its trailing-12-month net income margin of 8.41% is 30.7% higher than the 6.43% industry average.
ABB has paid dividends for ten consecutive years. Over the last three years, ABB’s dividend payouts have grown at a 3.7% CAGR. While ABB’s four-year average dividend yield is 3.25%, its current dividend translates to a 2.71% yield.
ABB’s total revenues came in at $7.82 billion for the fourth quarter that ended December 31, 2022, up 3.4% year-over-year. Moreover, its gross profit came in at $2.66 billion, up 10.9% year-over-year. Its operational EBITA came in at $2.66 billion, indicating a 16% increase year-over-year.
Street expects ABB’s revenue to increase 2% year-over-year to $30.04 billion in 2023. Its EPS is expected to grow 17.7% year-over-year to $1.53 this year. The stock has gained 23.3% over the past nine months to close the last trading session at $34.
ABB’s overall A rating equates to a Strong Buy in our POWR Ratings system. It has an A grade for Sentiment and a B for Growth, Stability, and Quality. It is ranked first in the same industry.
Beyond what is stated above, we’ve also rated ABB for Value and Momentum. Get all ABB ratings here.
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CAT shares were trading at $249.19 per share on Wednesday afternoon, down $0.47 (-0.19%). Year-to-date, CAT has gained 4.52%, versus a 7.41% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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