This is a guest contribution from The Dividend Manager published on November 17th, 2016
Since the election, we have seen several sectors rally, while others declined. One sector that has benefited significantly so far has been the industrial industry. Companies in the industrial industry include defense, airlines, waste management, machinery and construction. Following the election results, stocks in this category jumped on hopes that spending will increase in areas such as infrastructure and defense, benefiting these companies.
The Industrial Select Sector SPDR Fund (XLI) has increased by 9% since the election. Companies including Caterpillar (CAT) and Lockheed Martin Corporation (LMT) surged even higher, with 5 day performance of 14% and 13%, respectively. Following the unexpected market rally, Caterpillar issued a a positive statement regarding the future president:
“There is bountiful evidence that free trade, tax reform, infrastructure investment and smart regulation are critically important to manufacturers’ success.”
As a whole, the sector has increased nearly 6% since the election.
|Rank in Top 100||Company||Symbol||Yield||Industry||Post-Election Performance|
|30||Deere & Co.||DE||2.72%||Farm Construction/Machinery||4.07%|
|43||Eaton Corp||ETN||3.45%||Electrical Equipment||10.35%|
|45||Magna International||MGA||2.50%||Auto Parts||-0.75%|
|60||Siemens AG (ADR)||SIEGY||3.41%||Conglomerate||4.94%|
|92||Caterpillar||CAT||3.80%||Farm Construction Machinery||14.42%|
Several analysts noted that the defense segment of the sector should be focused on ahead of the Trump presidency. Since the election, the PowerShares Aerospace & Defense ETF (PPA) gained 11%. It is no secret that president-elect Trump focused a large amount of his campaign and national security, which now signals a positive future for some of the stocks in the industry.
The lead players in the defense industry, including Boeing (BA), Lockheed Martin (LMT) and Raytheon (RYN) had a steady year in 2016, but surged during market hours after the election. The days following the election have been kind to investors within this sector. Dividend investors are also rewarded with the sizable dividend yields offers by most of these stocks, too. In examining the sector for the strongest dividend candidates, the most compelling value within the industrial sector is with the diversified players like Cummins, Deere, and Eaton. Pure defense stocks like Lockheed Martin and Raytheon have tripled in value since early-2012. Whereas companies like Cummins have gone up less than 20% during the same period and offer more value for investors. Here are my favorite ten industrial companies. Most are members of our Top 100 list.
Cummins (CMI) has seen a nice bump to its share price since the election. The diesel engines maker is facing some legal troubles, alleging that the company cheated on emissions on Ram trucks. Despite the legal headlines, the stock has continued to have strong performance this week. Cummins will pay its next quarterly dividend of $1.025 on December 1. Since 2006, the company has been implementing healthy increases to its dividend, maintaining a decent yield for investors. It yields 2.9% and is my preferred industrial stock within the sector. Cummins is a Dividend Achiever – one of 273 stocks with 10+ years of consecutive dividend increases. You can see the full list of Dividend Achievers here.
Shares of Deere & Co (DE) have been up since the election, as president-elect Trump’s view of trade could potential improve the agriculture industry (however, Deere’s CEO, Sam Allen, is less optimistic). In addition, Trump also commented that he plans to use only equipment from Deere & Co and Caterpillar for his most publicized plan, the wall. Despite what happens directly with the Trump administration, the future of Deere’s performance depend heavily on crop prices. Deere paid its last dividend of $0.60 in November. Deere & Company last raised its quarterly dividend to $0.60 per share, an 18 percent increase from the prior rate of $0.51 per share, in May 2014. The company will declare its next dividend in December where another increase is expected. The stock currently yields 2.7%.
Eaton Corp (ETN) followed the sector rally, jumping in the week after the election. The power management company currently offers a dividend yield well over 3% and will pay its next dividend on November 18. It is expected that the company will declare, and likely increase its next dividend in February. It raised its dividend in February 2016 announcing a regular quarterly dividend of $0.57, a 4 percent increase from the prior rate of $0.55 per share. It current yields 3.4%.
Magna International (MGA) under-performed compared to its peers following the election. The auto parts company has a significant amount of its operations in Mexico, and demands on a thriving global auto industry to succeed. With Trump’s talk on trade, some investors become spooked with this stock. The company will pay its next dividend of $0.25 on December 9. Magna International raised its dividend last March by an impressive 14% to $0.25 on a quarterly basis, up from $0.22 per share. The firm maintains one of the highest dividend growth rates in the sector at 12% annually over the last five years.
Aircraft producer, Boeing (BA), joined the rally of defense stocks after the election. As mentioned above, defense is likely to benefit from the Trump administration, as military spending is expected to rise. However, Boeing’s business is largest dependent on exports, which could be impacted by Trump’s trade plan. For investors interested in the aerospace-defense industry, Boeing is currently the largest holding of the PowerShares Aerospace & Defense ETF (PPA). The stock will pay its next $1.09 quarterly dividend on December 2. The firm pays just over 3%.
Shares of Siemens (SIEGY) jumped after the election results last Tuesday, but the focus has been shifted to its offer to purchase industrial software company Mentor Graphics for $4.5 million, or $37.25 per share. The German company is one of the most diversified industrial companies in the world. The firm pays an annual dividend each year. Siemens proposed a dividend of $3.85 a share for fiscal 2016, up from $3.75 a share in fiscal 2015. The dividend will be paid to shareholders in March 2017.
For much of 2016, Emerson Electric (EMR) experience a fair amount of volatility due to its exposure to oil. After the election, however, the company rallied 12%, above many of its sector peers. In the beginning of November, Emerson announced a small dividend increase from $0.475 to $0.48. The next dividend will be paid on December 9. The firm maintains a yield of 3.81%. Dividend increases are nothing new for Emerson Electric investors. The company is one of only 18 Dividend Kings – stocks with 50+ consecutive years of dividend increases.
United Technologies (UTX) had a rough start to 2016, but quickly recovered as its orders have increased. The stock’s performance jumped 6% after the election, due to Trump’s stance on military spending. United Technologies announced a quarterly dividend of $0.66 in April, a 3% increase from the prior rate of $0.64 per share. The company will pay its next dividend on December 10. The firm yields 2.6%.
Caterpillar (CAT) has continued to rally after the election results by nearly 15% in price. The heavy machinery company had been selected by Trump to be involved in the production of the wall along the Mexican border. In addition, Trump has made promises to improve infrastructure, which would benefit companies like Caterpillar. The company will pay its next $0.77 dividend on November. Caterpillar last raised its dividend in June of 2015, hiking the payout by 10% from $0.70 a share to $0.77. Caterpillar will declare its next dividend in December. It offers investors a juicy 3.8% yield.
The Mosaic Company (MOS) is another good selection in this sector, although ranked just outside the Top 100. The potash crop nutrients company saw its highest share price since September after the election. Although it did rally with the election news, the company has also sparked interest due to recent insider trading of the stock. The company will pay its next $0.2750 dividend on December 15. The firm has not raised its payout every year. The Mosaic Company last raised its regular quarterly dividend on June 18, 2015. It yields a stellar 3.8%.