These three vastly different stocks have good earnings growth prospects in the coming years and look set to increase their dividends accordingly. Let's take a look at why railroad Union Pacific Corporation (NYSE:UNP), electrical products company Hubbell Incorporated (NYSE:HUBB) and boat and boat engine manufacturer Brunswick Corporation (NYSE:BC) are stocks worth buying.

A boat in the Mediterranean.

Image source: Getty Images.

Union Pacific

Despite the doom and gloom around the industrial economy in 2020, it's been a pretty good year for the Class 1 U.S. railroads on the market. All the railroads reported good earnings and gave guidance that suggested they could improve their operating ratios (OR) even as carload volumes are set to stagnate in 2020. For reference, the OR is a key industry metric measuring operating expenses divided by revenue, so you're looking for a lower number.

Unfortunately, Union Pacific has been the laggard as management gave a relatively mundane OR outlook for 2020, but that shouldn't detract from the company's ongoing progress. As part of its "Unified Plan 2020," the railroad had expected to reach an OR of 60% by 2020 and be on its way to 55% over time. Management's guidance for an OR with a 59% handle in 2020 is actually ahead of schedule. Moreover, if the industrial economy picks up in the next few years -- as most commentators expect it to -- Union Pacific's dividend could be set to grow significantly.

BC Dividend Yield Chart

BC Dividend Yield data by YCharts

Hubbell

The electrical equipment maker's low-single-digit revenue growth prospects are never going to make it the sexiest stock for investors to own. However, you can just as easily make money on a boring stock that's being ignored by the market. In this context, the case for buying Hubbell is as follows:

  • The stock is cheap on a free cash flow (FCF) basis with $500 million generated in 2019, putting it at a current price of 15.8 times FCF.
  • Hubbell's dividend yield is around 2.5% and management aims to pay 40% to 50% of net income in dividends.
  • A combination of ongoing solid growth in electrical transmission and distribution, and a cyclical recovery in industrial end markets is expected to lead to low-single-digit revenue growth in the next few years.
  • Ongoing investment in restructuring actions and utilizing FCF to make acquisitions is expected to lead to mid-single-digit earnings growth in the next few years.

Hubbell's power segment (51% of operating income in 2019) is attractive because even though there is a debate over whether traditional fossil fuel or renewable energy will be the primary energy source in the future, transmission and distribution will continue to be necessary, regardless of the source.

Based on management's estimates for adjusted diluted EPS of $8.50 to $8.80 in 2020 and 45% payout ratio, Hubbell could be yielding around 2.7% next year, with more dividend growth to come in the following decade. It's not the most exciting stock on the market, but if you are looking for solid dividend stock with dependable long-term prospects, Hubbell could fit the bill.

HUBB Price to Free Cash Flow Chart

HUBB Price to Free Cash Flow data by YCharts

Brunswick

Brunswick is a manufacturer of recreational boats, engines, and parts and is one stock that benefits from an aging U.S. demographic spending money on leisure and recreation.

In addition, Brunswick has taken significant actions to focus on the marine industry and reduce the cyclicality of its earnings. For example, it sold its Life Fitness exercise equipment business 2019 and now generates 49% of its total earnings from aftermarket engine parts. Interestingly, boats only contribute 13% of earnings with the rest coming from original equipment engines -- management is targeting a 45% share in U.S. outboard motors by 2022.

Although the current dividend yield of 1.4% is nothing to write home about, management plans to leverage annual sales growth of 5% to 7% in propulsion and boat sales into EPS growth from $4.33 in 2019 to $6.25 to $7.25 in 2020. However, to get there the company is going to need the housing market to remain in growth mode, as spending on marine leisure is correlated with how homeowners perceive the value of their assets.

Brunswick's management plans to pay 20% to 25% of its earnings in dividends. At the midpoint of guidance, that means Brunswick could be paying a dividend of $1.46 in 2022, implying a yield of 2.3%. That's not a bad yield in itself, but considering the relatively low payout ratio and the company's growth prospects, it makes the stock look attractive.