Despite surging inflation, interest rates remain at relatively low levels. So it makes sense for investors to keep buying equities that pay good dividends and that have plenty of potential to grow them in the coming years.
In that line of thought, heating, ventilation, air conditioning, and refrigeration (HVACR) products distributor Watsco (WSO -0.18%), building products company Johnson Controls International (JCI 1.02%), and United Parcel Service (UPS 0.14%) are worth considering. They aren't ordinarily seen as dividend stocks, but with dividend yields ranging from 2.6% to 3.4%, maybe it's time for investors to start thinking differently about them.
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Watsco keeps generating returns for investors
Watsco's business model is simple to understand. An HVACR contractor goes out to service equipment. The contractor identifies the problem and then orders equipment, parts, and supplies from a distributor like Watsco. It may not seem a glamorous business, but it's produced stellar returns for Watsco shareholders over the decades.
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The secret to Watsco's success is the stability of its end markets -- if you have HVACR equipment in the home or office, then it will need servicing at some point -- and its ability to grow revenue through acquisitions. The HVACR distribution market is highly fragmented, and Watsco's geographic expansion strategy through small acquisitions (notably in the Sun Belt, with Texas and Florida its largest end markets by state) has worked perfectly.
The company has a significant growth opportunity through offering contractors digital platforms an e-commerce facility to make their ordering job easier -- something smaller distributors will struggle to compete with. It all adds up to ongoing growth from a company with an excellent track record of generating value for shareholders.
Johnson Controls has excellent long-term growth prospects
HVACR and building products company Johnson Controls isn't listed as one of Watsco's key suppliers, but that doesn't mean it isn't exposed to many of the same positive trade winds. On top of the ongoing need for HVACR, Johnson Controls has a significant growth opportunity from the drive to improve efficiency and reduce carbon emissions in buildings. In addition, the pandemic has created a whole generation of facility owners keen to ensure their buildings are clean, healthy, and properly ventilated.
Aside from the retrofit opportunity, Johnson Controls can help customers meet their net-zero goals by using its OpenBlue software platform and digital services. Using internet-enabled technology and advanced analytics, building owners can generate actionable insights to ensure their buildings are working optimally.
Unfortunately, the recent results disappointed investors, with the company struggling to overcome supply chain issues and component shortages.Still, order growth remains strong, and once the temporary problems resolve, the company is likely to bounce back strongly on its way to multi-year growth. And the stock looks like a great value now.
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UPS stock is a buy on a dip
Package delivery giant UPS also disappointed investors recently, with its volume growth coming in below management's expectations in the first quarter. However, there's little management can do about the tough comparisons created by the stimulus payments that were sent out in the first quarter of last year in the U.S. Additionally, the lockdowns in China hit UPS's international volume.
Both of these issues will fade in the near future, and it's worth noting that UPS maintained its full-year revenue and earnings guidance in its recent earnings presentations. In a nutshell, UPS's pricing actions have offset the weakness in volume in the first quarter. Moreover, its guidance for 2022 implies the company will reach its previously stated 2023 targets a year ahead of schedule. It's testimony to the success of CEO Carol Tomé's plan to focus on maximizing the profitability of UPS's existing network rather than purely chasing volume growth. As such, UPS is expanding margin and revenue at the same time while it expands into targeted growth markets like small and medium-sized businesses and healthcare. Now sporting a 3.3% dividend yield and plenty of margin expansion prospects, UPS is a valuable addition to a dividend investor's portfolio.
