Investing in companies that you understand and use can make participating in the stock market less intimidating and more enjoyable. Knowing the ins and outs of good companies can also be an effective way of generating higher investment returns over time.
Here are three industrials that you probably use every day, will be easy to understand, and can help round out your portfolio for years to come.
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1. Honeywell International
Honeywell International (HON 0.22%) is one of the five largest publicly traded U.S. industrial stocks. You've likely been directly exposed to its many residential and commercial products such as fans, heaters, air conditioners, thermostats, and more. More subtly, you've probably encountered Honeywell's aerospace technology such as thermal switches, generators, radars, power units, and lighting systems -- and that is just a mere fraction of Honeywell's full suite of products and services.
Honeywell has proved itself to be a well-rounded industrial, having outperformed the Industrial Select Sector SPDR ETF and the broader S&P 500 over the past 10 years.
Honeywell has also raised its dividend substantially -- nearly 200% in the past 10 years. It currently yields 2.4% at the time of this writing.
Honeywell shares are on sale for about 15% off from their price at the beginning of the year. But despite Honeywell's earnings decline last quarter, there are reasons to suggest that Honeywell's industry-leading balance sheet, strong cash flow, and cost reductions make the stock arguably one of the best industrials on the market today.
2. Waste Management
After the company moved forward with its intention to acquire the fourth-largest waste disposal and collection business in the U.S., there's a good chance that Waste Management (WM -1.22%) is hard at work picking up, transporting, and disposing of your recycling and trash. The nation's No. 1 waste management business benefits mainly from the simple tailwind that more people means more trash.
Aside from picking up your trash and the trash of many places you visit, Waste Management operates large commercial and industrial sectors, which made up nearly 70% of its second-quarter operating revenue on the collection side.
Like Honeywell, Waste Management is vulnerable to a slowdown in the economy -- but even with lower revenues from all of its sectors except residential -- Waste Management's free cash flow for the first six months of the year was $741 million compared to $871 million for the same period last year, putting it on track to handle the $230 million it expects to pay to shareholders each quarter.
It's worth mentioning that Waste Management is less exposed to economic cycles than other industrial stocks because the demand for trash and recycling collection never goes away. Even though production and consumption will go down as an economy slows, Waste Management is a worthwhile investment due to the strength of its main long term tailwind -- an increasing population.
3. Dover
Even if you regulate your own air, have avoided planes all your life, and are a brilliant composter, you'd be hard-pressed to avoid Dover's (DOV 0.59%) range of products. Ranging from payment options at the gas pump to refrigeration equipment at convenience stores and grocery stores, Dover's products are truly all around us. Like Honeywell and Waste Management, Dover's product suite is large and extends to the commercial and industrial sectors as well -- such as Dover Precision Components -- which targets the oil and gas, power generation, and marine market, among others.
Income investors will appreciate Dover's track record for dividend growth. According to Dover, the company has 64 consecutive years of dividend growth, making it one of the longest-tenured Dividend Aristocrats. Like the other companies on this list, its free cash flow has consistently exceeded its quarterly dividend.
DOV Total Dividends Paid (Quarterly) data by YCharts
Dover had adjusted diluted earnings per share (EPS) of $5.93 in 2019 and originally expected $6.20 to $6.40 of adjusted diluted EPS in 2020. That EPS forecast has since been lowered to $5.00-$5.25 -- signaling that Dover is managing the impact of COVID-19 better than other industrials. Even with the decline in expected EPS, Dover's P/E ratio based on full-year 2020 earnings would be around 20, which is reasonable.
Dividend growth with a touch of familiarity
Honeywell, Waste Management, and Dover are stocks that you probably use every day, and they pay you a dividend every three months. These three industrials are likely to ebb and flow at least somewhat with the economy, but each company has done a good job of handling the coronavirus pandemic so far. If you like dividends and want to invest in some companies that you can say you use and own -- these three stocks may be for you.
