Are you looking for stocks that pay healthy dividends and have good long-term growth prospects as well? In that case, this eclectic bunch of industrial-related stocks are worth consideration -- namely, copper miner Southern Copper (SCCO -0.37%), multi-industry industrial 3M (MMM -1.05%), and German industrial giant Siemens (SIEGY -0.41%). Here's why.
Southern Copper
The U.S.-listed miner is 88.9% owned by Grupo Mexico and operates mining facilities in Mexico, Peru, Chile, Argentina, and Ecuador. Management claims to own the "largest copper reserves of the industry," and therefore is best taken as a play on copper.
Image source: Getty Images.
That's been a good thing in 2020 because copper prices have surged in response to increasing demand from China, as its economy recovered from the COVID-19 pandemic at a time when the copper supply was tight. However, prices may well moderate in the future as supply increases to balance demand.
Nevertheless, the long-term demand outlook is still positive, driven by the likelihood of demand for copper for use in electric vehicles and renewable energy.
Turning to dividend matters, the company's policy is to pay its dividend subject to its current cash position, cash generation, and capital-expenditure needs. In other words, you can expect its dividend payout to fluctuate over time, but if you believe that the clean-energy transition will underpin copper demand, then it's reasonable to expect higher prices over time and, ultimately, more cash and earnings for Southern Copper.
SIEGY Dividend Per Share (Annual) data by YCharts
3M
The industrial giant and Dividend Aristocrat has fallen out of favor with investors due to a few years of lackluster performance, most notably in its healthcare and consumer segments. However, it still has a collection of high-quality businesses, and CEO Mike Roman is busy restructuring the company. It's too early to definitively say that his efforts are paying off in a big way, but he has a lot of tools at his disposal in order to engineer a turnaround.
For example, despite declining operating margins over the years, 3M still generates substantial amounts of free cash flow (FCF), which gives Roman firepower to restructure the company and engage in acquisitions in order to buy growth businesses. Moreover, as you can see in the chart below (at the bottom), 3M's dividend is very well covered by its FCF.
Data by YCharts.
While there's no guarantee that Roman will get margins up again and revenue growth in the mid-single-digit percentage, the stock's lowly valuation -- 3M trades on just 16 times current FCF -- means there's plenty of upside to the stock. Meanwhile, the 3.4% dividend yield gives investors a decent payout.
All told, it's a favorable risk/reward situation for investors.
Siemens
The Munich-based industrial giant has been busy restructuring itself. Recently, it combined its 67% stake in renewable energy business Siemens Gamesa with its gas and power business and created a new company called Siemens Energy, which was spun off in September. Siemens retains a 35.1% stake in Siemens Energy
If this isn't complicated enough, Siemens also retains a 79% stake in a publicly listed subsidiary, Siemens Healthineers. Hopefully, the table below helps explain matters.
|
Siemens |
Earnings Before Interest, Taxes, and Amortization 2020 |
Activity |
Key Competitors |
|---|---|---|---|
|
Digital Industries |
3.25 billion euros |
Factory and process automation, industrial software, motion control |
ABB, Emerson Electric, Schneider Electric, Rockwell Automation, Dassault Systemes |
|
Smart Infrastructure |
1.3 billion euros |
Electrical and building products, digital grid solutions, distribution systems |
ABB, Honeywell, Johnson Controls, Schneider Electric |
|
Mobility |
822 million euros |
Rail infrastructure, rolling stock, traffic systems. |
Alstom, Bombardier |
|
Siemens Healthineers* |
2.18 billion euros |
Imaging, diagnostics, advanced therapies |
General Electric, Philips, Roche, Abbott Labs |
|
Total Industrial |
7.65 billion euros |
n/a |
n/a |
|
Siemens Financial Services |
345 million euros |
n/a |
n/a |
|
Portfolio Companies |
(504 million euros) |
Energy businesses, logistics, commercial vehicles, mechanical systems |
Assorted |
Data source: Siemens presentations. *79% owned by Siemens. Siemens also retains a 35.1% stake in Siemens Energy.
Probably the best way to think about Siemens is as a company with two solidly growing businesses in Siemens Healthineers and mobility, combined with two more exciting business in digital industries and smart infrastructure. The former is a play on the increasing use of automation in the factory and process industries driven by digitization. Meanwhile, the latter has mid-single-digit growth potential, driven by investment in smart buildings, digital grid solutions, and energy distribution and transmission.
Siemens also generates loads of cash, with total company FCF in 2020 of 6.4 billion euros, or around 7.1% of its current market cap. In other words, it trades at around 14 times its current FCF.
The U.S. listing sports a 3.1% dividend yield. Given the company's growth prospects, FCF generation, and policy of paying 40%-60% of earnings in dividends, there's plenty of potential for dividend growth in the future.
