On Monday, the S&P 500 went positive for the year to top off a 45% surge from its 52-week low on March 23. While it's been a good ride up, many investors are wondering where to go from here.
Here are three top industrial stocks capable of overcoming setbacks from COVID-19, and growing during an economic recovery.
United Parcel Service
United Parcel Service (UPS 0.96%) is one of the largest and most well-known transportation stocks. The company's global supply chain of integrated services by land, sea, and sky also makes UPS one of the top logistics companies. Its healthcare logistics business has been growing "in coordination with the President's Coronavirus Taskforce" as time-sensitive information, trials, specimens, medical devices, N95 masks, respirators, and more are transported safely and securely to areas of need.
Despite this growth, UPS suspended its share buyback program in part as a result of slowing business-to-business volume. It also reduced 2020 CapEx by $1 billion and withdrew its 2020 guidance.
Given UPS's international exposure, it makes sense that the company would take the necessary precautions to ensure it doesn't spread itself too thin if the pandemic persists for an extended period of time. However, it's unlikely UPS's preventative measures would mean a cut to its dividend. The company stated that its dividend "remains a high priority and is a hallmark of our financial strength."
UPS's market capitalization and dividend yield are more than double that of one of its main competitors, FedEx (FDX 2.01%), not to mention that its stock has outperformed FedEx and remained less volatile over the past five years. That being said, FedEx is making headway on its niche in convenience delivery, so it will be important to monitor how this encroaches on UPS's business.
Honeywell International (HON 3.64%) manufactures and maintains a slew of industrial and household products and software. The company is a global technology leader and a pioneer in everything from cybersecurity to onboard vibration monitoring systems. Honeywell also licenses its brand name to retail products made by other manufacturers, like thermostats, sensors, alarm systems, heaters, fans, home generators, paper shredders, air conditioners, and more. It's likely you have Honeywell products in your home and have been exposed to them on countless occasions.
Honeywell's size, international exposure, and product portfolio would make it one of the key industrial companies to benefit from an economic recovery, but that doesn't mean Honeywell needs an economic recovery. Honeywell's debt to equity, debt to capital, and net total long-term debt, three key financial metrics, are very low for an industrial of its size.
Honeywell's rock-solid balance sheet and strong free cash flow give it the breathing room needed to fund its dividend even if business slows, or even take on more debt without becoming overly leveraged.
In the meantime, Honeywell has been developing solutions in response to the COVID-19 pandemic, such as its safety packs for airline crews and passengers that contain gloves, masks, and hand wipes.
Another solution is Fast Track Automation, which leverages Honeywell's dense cloud network, remote asset management, and more to allow "vital vaccines, treatments and therapies to move from regulatory approval to full production in as little as two months." Honeywell's technology not only links the two processes together but can also help automate manufacturing processes in anticipation of full production so that once approval occurs, production can ramp up as quickly as possible.
Illinois Tool Works
Illinois Tool Works (ITW 3.49%), often known as ITW, is one of those brands that you may not have heard of despite it being all around you. Consumer products like zippers in clothing, resealable food packaging, multi-pack ring carriers for beverages, components for automobiles, and fastening systems for construction are just a few of the markets and products that make up this over-100-year-old company's portfolio.
ITW is a dividend aristocrat that has given investors 47 years of consecutive dividend growth. Over the past 10 years, ITW investors have watched their shares nearly triple and the company's dividend go up 245%.
These dividend raises have allowed ITW to yield 2.3% at the time of this writing, despite the rise in its stock price.
An attractive trio
UPS, Honeywell, and ITW are three industrials with attractive dividend yields. Picking up a few shares of any or all of these stocks even after the recent market run-up is a good way to balance a portfolio with large and reliable companies.