Manufacturer Trane Technologies (TT +0.00%) is firmly entrenched as an ESG company. ESG stands for Environment, Social, and Governance; the label is meant to indicate a company's endeavors in things like climate control, employee equity, and fair corporate governance. Trane is an ESG leader, especially on the environmental side.
The company is also entrenched as a dividend payer that has consistently provided shareholders with a passive income stream for many years. Trane's second-quarter earnings report showed spectacular numbers on both fronts. Let's take a closer look.
Image source: Getty Images.
Recognized ESG winner
Trane's innovative heating and air conditioning units reduce greenhouse gases and allow commercial and residential users to use energy more efficiently. Perhaps more importantly, they save customers money on energy expenses. Trane's customers include commercial enterprises like data centers, healthcare facilities, and schools, which all use tons of energy and serve large groups of people. The cost savings that can be generated by keeping their buildings running and people comfortable in an efficient way can be significant and simultaneously accelerate sustainability goals.
Trane's Thermo King branded transport refrigeration segment does the same for the supply chain. Its customers rely on Thermo King to move food, pharmaceuticals, and other products that need to remain cold. Cost savings from energy efficiency are in play in transport refrigeration also, but with the added savings of reducing food and drug spoilage.
Trane has its own goals too. The company plans to reduce its customers' CO2 emissions by one gigaton by 2030. By advancing toward its ESG goals, Trane has been recognized by its counterparts in the investing universe. The company has been included in Dow Jones Sustainability Indexes for 11 straight years, and Morningstar Sustainalytics identified Trane as an industry leader in ESG.
NYSE: TT
Key Data Points
Inspiring Q2 numbers
In its webcast regarding Trane's second-quarter earnings report, CEO David Regnery pointed to energy efficiency and decarbonization mega-trends when he said:
Trane Technologies is proud to be leading our industry with bold sustainability commitments and action to back it up. Our innovation is accelerating decarbonization of commercial buildings, homes and transport.
The earnings report presented some inspiring numbers for the company's second quarter. Organic revenue increased 11% year over year to $4.2 billion, and adjusted continuing earnings per share jumped 13% to $2.16. More encouragingly, the company noted that organic bookings were up by 7% for the quarter and 37% over pre-pandemic bookings. Looking ahead further, Trane expects its backlog to remain elevated well into 2023.
During the quarter, Trane paid $155 million in dividends and currently pays about 18% of its earnings out in dividends. So there is ample room for the company to increase its dividend comfortably.
Passive income grower
Trane's earnings report also reiterated its commitment to paying a competitive dividend and growing its dividend at or above its earnings growth rate over time. Investors looking to create a growing stream of passive income will be happy to know that Trane increased the lower end of its earnings per share guidance for 2022. The company previously forecasted earnings per share between $6.95 and $7.15, and now forecasts between $7.05 and $7.15.
Earnings at its forecasted level will easily cover its $2.68 annual dividend, which has grown over 10% per year over the last five years. The stock currently yields 1.7%, and considering the company's growth projection, passive income investors should have their eyes firmly focused on Trane.
