- Market value: $63.2 billion
- Dividend yield: 2.8%
Electric systems giant ABB (ABB, $33.11) manufactures and sells gear used in a host of applications including automation and robotics, electric vehicle (EV) and renewable power systems, manufacturing applications, mining and oil exploration, and much more.
Like many of the industrial stocks featured, ABB is a "cyclical" company that relies on broader economic activity to drive profits and sales. However, its diversified operations allow it a measure of reliability because it has clients that are large and small and are spread across sectors and geographies. And combined, they collectively provide strong baseline demand.
In fact, ABB has slightly outperformed the rest of Wall Street in 2023 thanks to its continued consistency. What's more, ABB has a bright future thanks to high-tech technologies used in areas such as EV charging stations, robotics and solar panel arrays. This combination of near-term reliability along with long-term growth makes ABB stand out.
Many industrial stocks are boring, traditional businesses. But ABB has a dynamism and relevance that is uncommon in the sector and could drive significant returns as a result.
- Market value: $88.7 billion
- Dividend yield: 2.4%
Automatic Data Processing (ADP, $213.17) is a human resources and payroll platform that is embedded into the operations of many businesses across the global economy. There's obviously a tie to business creation and employment trends here, but the wide-reaching existing relationships that ADP has ensure fairly consistent performance year after year.
In part because of this enviable reliability, ADP is one of Wall Street's best dividend stocks. Indeed, the company was able to shoulder a stunning 20% increase in its quarterly dividend at the end of 2022 to mark its 48th year of consecutive annual dividend increases. Sure, share prices have been under pressure recently, but you can't argue with facts like those. It's also worth noting that despite recent turmoil, we saw a new all-time high for ADP stock back in November thanks in part to this news about its distributions.
Looking forward, consensus forecasts for about 9% revenue growth this year and 7% growth in fiscal 2024 also point to a business that isn't just weathering a rough environment, but thriving in it.
Short-term hiring trends will always wax and wane, but if you're looking for a stock in the industrial sector that will keep paying consistently in the long run, then ADP could be worth a spot in your portfolio.
- Market value: $110.3 billion
- Dividend yield: 2.1%
As with many industrial stocks, machinery giant Caterpillar (CAT, $213.53) is inherently a cyclical business that depends on strong economic activity to drive its sales and profits. However, some unique factors about CAT make it a very strong option right now despite the fact that the worldwide growth outlook isn't all that rosy in 2023.
To begin with, Caterpillar derives about 20% of its sales from Asia-Pacific – and with the end of China's "zero-COVID" policies, there is a lot of potential for pent-up demand to be released via spending on construction, infrastructure and more. That could create a nice short-term tailwind for the Dow stock as a result.
Furthermore, Caterpillar is one of the best dividend growth stocks, having increased its payout annually for almost 30 years to show a long-term commitment to shareholders. On top of that, CAT last year authorized a new share repurchase authorization of $15 billion – equivalent to about 13% of the company's market capitalization.
Caterpillar is at risk from some cyclicality, but with a diversified business, strong APAC ties and a generous history of returning capital to shareholders, this is an industrial stock worthy of your attention.
- Market value: $126.6 billion
- Dividend yield: 2.1%
Honeywell International (HON, $189.43) is a pretty good example of modern industrial conglomerates, and their risk-reward trade-off. It's a diversified technology and manufacturing company with four business segments: aerospace; building technologies; performance materials and technologies; and safety and productivity solutions.
Its aerospace arm that makes jet engines and flight controls, among other things, is its largest driver of sales at just under a third of annual revenue. However, HON also produces everything from safety apparel to pharmaceutical packaging to video surveillance equipment across its operations.
The upside of a sprawling conglomerate like this is the fact that HON is not overly reliant on a single product or business line. The downside, though, is that it can be challenging for a single item to stand out – or for all these divisions to row in the same direction and drive significant growth.
That said, the environment does seem to be tipping towards Honeywell thanks to tailwinds for a recovering commercial aerospace industry and its long-term research and development of everything from air taxis to airborne delivery drones. There's also a lot of potential in its building technologies segment via sustainability solutions to help apartments and office buildings go "green."
There are a lot of moving parts here, so you have to think long term. But if you're interested in an established industrial stock with diversified operations, Honeywell is worth a look.
- Market value: $69.9 billion
- Dividend yield: 2.1%
Machinery giant Illinois Tool Works (ITW, $229.41) is a great example of a slow-and-steady industrial stock that can provide stability and income in the long term.
ITW is a diversified manufacturer, creating everything from automotive parts to foodservice equipment to welding gear to high-tech systems of test and measurement. This broad range ensures that no single product or industry will make or break its results.
Furthermore, there is an enviable commitment to shareholders at Illinois Tool Works. The Dividend King has consistently paid a dividend since 1933 and has increased it for 59 consecutive years. The headline yield isn't tremendous, sure, but it's all but certain that those payouts will continue to keep growing across the years ahead.
And to top it all off, ITW finished 2022 with a bang thanks to a fiscal third-quarter report that included 16% year-over-year growth in both revenue and earnings per share. That kind of performance would be impressive from any stock, in any economic environment. But it's particularly noteworthy that a stolid industrial firm like this could record those kinds of numbers.
Global economic trends will surely play a role in the future outlook for ITW. However, patient investors can have confidence this stock will deliver over the long term based on its strong historical track record.
- Market value: $124.7 billion
- Dividend yield: 2.5%
First things first: If you're an investor who has moral qualms about investing in weapons of war, then Lockheed Martin (LMT, $489.99) is decidedly not for you. Lockheed and its iconic "Skunk Works" developed many of the Cold War-era jets and missile systems that have become synonymous with modern military might.
That said, the recent conflict in Ukraine speaks to the importance of defense spending in the current geopolitical environment. As such , LMT is a natural beneficiary of this trend.
Case in point, the U.S. is planning significant sales of Lockheed Martin's High Mobility Artillery Rocket Systems (HIMARS) to support Ukraine. These deals have to be rubber-stamped by the U.S. government, but ultimately the billions spent on this missile system trickle into LMT's pockets.
Presuming the for-profit nature of military equipment doesn't turn your stomach, it's also worth noting that LMT is one of the few bright spots on Wall Street in an otherwise dismal stretch for other stocks.
Since the start of 2022, the stock is up about 40% while the broader S&P 500 has lost 14% in the same period. And with Lockheed Martin recently setting new 52-week highs, it doesn’t seem like this momentum is slowing down anytime soon.
- Market value: $145.6 billion
- Dividend yield: 2.2%
Aerospace and defense giant Raytheon Technologies (RTX, $98.76) has a long and impressive track record of growth, thanks in part to an aggressive practice of mergers and acquisitions. That doesn't just bolster its product offerings, but also drives cost synergies.
An investor presentation scheduled to coincide with the Paris Air Show in June is sure to reveal big realignment plans in the wake of a recent restructuring of its businesses. Specifically, the current version of RTX is a mashup between the assets of Raytheon and commercial aerospace giant United Technologies in the wake of a 2020 megamerger that created a powerhouse in the sector. Now that the dust has settled, shareholders can expect a big strategic plan to guide the new version of Raytheon.
The company is plotting nearly 10% organic revenue growth this year and next, but it's the potential cost savings that should really have investors optimistic.
Throw in an above-average dividend and a $6 billion stock buyback plan authorized at the end of 2022 and there's a good recipe for success here.
- Market value: $119.9 billion
- Dividend yield: 2.7%
The largest railroad operator in the U.S, Union Pacific (UNP, $194.21) has been in operation for more than 150 years and has a network that spans nearly 32,000 miles across 23 states. It transports everything from packaged merchandise to bulk grain to refrigerated foods to tanks of oil to automobiles – and everything in between.
Like some of the other industrial stocks on this list, UNP is facing cyclical headwinds from what could be a slowing economy here in the U.S. If businesses and consumers are spending less, there simply isn't as much stuff to transport around via rail. However, it's undeniable that UNP has a very entrenched business model that is sure to withstand the test of time.
What's more, while the company has been a bit stagnant in recent years there is a big internal movement for change right now. This effort began in earnest back in February, when CEO Lance Fritz announced his resignation – and shares jumped about 10% in short order as a result. The move was, in part, because of pressure from activist investing group Soroban Capital Partners and a renewed focus on shareholder value.
Any big efforts to create efficiencies or drive returns may not be quick in the offering, but patient investors could be rewarded by this logistics giant during its time of change.
- Market value: $163.3 billion
- Dividend yield: 3.4%
On one hand, package delivery giant United Parcel Service (UPS, $189.40) is set for a challenging year amid risks of an economic slowdown that could mean fewer shipments. But that said, the stock is "only" down about 8% in the last 12 months to more or less track the S&P 500 Index – so it's not in any worse shape than any other organization in the short term.
What it has going for it in the long run matters, though. It is reasonably valued and still has strong long-term growth prospects in the age of e-commerce. On top of that, this year marked the 14th consecutive annual dividend increase for UPS as payouts were boosted 10 cents over the prior year. That's on top of a $5-billion stock buyback program, too, signaling a very strong commitment to shareholders.
In the age of Amazon (AMZN), package delivery firms like UPS are vital logistics providers to the global economy. While any near-term slowdown could create headwinds, there's little doubt that one of Wall Street's best industrial stocks has staying power.
