Artificial intelligence (AI), machine learning, automation, and the industrial internet of things (IIoT) are all centered around using technology to improve processes and drive efficiency. Robotics can incorporate all four of these technologies. In many cases, companies invest in robotics by collecting and managing data and then applying that data to automate repetitive processes.
Deere (DE 2.05%), Siemens (SIEGY 0.14%), and International Business Machines (IBM -0.17%) are three industrial companies that are investing heavily in robotics -- which could help them lead the next industrial revolution. Here's what makes all of their dividend stocks great buys now.
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Buy the dip on Deere stock
Daniel Foelber (Deere): After a rip-roaring three-year rally, Deere stock has cooled off in 2023 and is currently down by around 10% year-to-date. Its sell-off could be a buying opportunity for investors interested in adding to their portfolios an industrial company that prioritizes growth.
Unlike many other massive industrial companies, which tend to reward shareholders with dividend raises and buybacks, Deere's strategy has been to reinvest extra cash into the business so that it can take greater market share across the industries it serves -- namely large- and small-scale agriculture, turf, construction, and forestry.
Aside from streamlining the business and lowering costs, Deere's key growth driver has been its investments in automation and IIoT. The company is a firm believer in the integration of industrial hardware and software to give operators ownership over their assets. A simple example would be software programs that help farms deliver higher crop yields while spending less on fertilizer and chemicals.
There's a growing push worldwide for "sustainable agriculture" -- the thoughtful use of farmland in ways that allows it to meet society's present needs, but also prioritizes preserving the land and the broader environment so that they can keep providing in the future. By targeting this growing trend, Deere is playing an ultra-long game that focuses on producing the highest return on investment. Deere's dealership network and brand power provide the services needed to help convince customers to adopt more tech-heavy solutions.
Deere is a cyclical company, and its performance is heavily dependent on the growth of the economy and the prices of corn, wheat, and soybeans. Its recent performance has benefited from supply chain disruptions across the industries it serves, which have boosted commodity prices. For that reason, it wouldn't be surprising if Deere's growth cooled off in the short term. But over the long term, Deere is making the right moves. And those moves should continue to reward its shareholders and its customers.
Siemens has robust cash flow and long-term potential
Lee Samaha (Siemens): Industrial conglomerates are not what they used to be. General Electric and its longtime archrival Siemens have both fundamentally restructured themselves in recent years. While GE's breakup attracted more attention, its rival's restructuring is no less noteworthy.
Siemens spun off its power and gas business (including a majority share in wind power business Siemens Gamesa) in 2020 after having spun off Siemens Healthineers in 2018 -- although Siemens retains stakes in both businesses.
Now, the parent company is focused on managing its three remaining businesses: mobility (rail infrastructure, rolling stock, and services), smart infrastructure (electrification, electrical products, and building systems/controls), and digital industries (factory/process automation, motion control, and industrial software).
With 3.9 billion euros in profit and a 20% profit margin in 2022, digital industries is by far the company's most important segment -- compared to 2.2 billion euros and a 13% margin for smart infrastructure and 800 million euros and an 8% margin for mobility.
Not only is Siemens a leading player in automation, but it's also the leading player in the software that powers the Industrial Internet of Things. Moreover, alongside its IIoT software, all three of its businesses offer IIoT services connected with their core automation, smart buildings/infrastructure, and rail technology offerings.
Management expects its IIoT-focused digital businesses (which delivered around 6.5 billion euros in revenue in its fiscal 2022) to grow revenue at a 10% annual rate through at least 2025. That makes Siemens a major player in the automation and digital revolutions.
Get paid to invest in the IoT with IBM
Scott Levine (IBM): Undoubtedly, most investors are familiar with IBM. For conservative investors, its status as a blue-chip stock may make it attractive. Income investors, on the other hand, may be drawn to its sizable dividend, which clocks in with a forward yield of 5.3% at the current share price.
What members of either group of investors might fail to recognize about Big Blue, however, is that the company has broad exposure to the Internet of Things (IoT). Forget arms and legs -- IBM is providing the brains for the robotics that are behind the Internet of Things.
One of the fundamental ways in which it's helping to power the IoT is with its cloud offering -- a solution that's having a material effect on the company's finances as it leads to growth in other areas of the company's business.
Another significant way in which IBM is accomplishing this is with its AI natural-language processor, Watson. With the IBM Watson IoT platform, customers have access to a leading AI that can help analyze historical and real-time data. Moreover, IBM recently upped its IoT offerings with Omnio Edge, a solution that helps to automate data acquisition and unification from IoT devices.
Given its sizable dividend, cautious investors may be concerned that IBM won't be able to sustain its distributions at current levels. Over the past 10 years, however, IBM has consistently generated sufficient free cash flow to cover the dividend.
IBM Dividend Per Share (Annual) data by YCharts.
Granted, its free cash flow has ebbed recently as the company has taken steps to reforge itself into a new IBM that's focused on its hybrid cloud and AI offerings, but management recently forecast free cash flow of $10.5 billion for 2023. For IoT-interested investors eager to grow their passive income, IBM is a compelling option.
