History shows that industrial stocks tend to underperform the market in a rising interest rate environment. These companies rely on their healthy capital expenditure (capex) spending, which typically comes in the form of the goods and services that industrial companies produce. When those consumers cut their spending, industrial companies are affected almost immediately.
But in 2022 and 2023, even as interest rates rose at the fastest rate ever, many industrial companies got a boost from the Inflation Reduction Act and the Infrastructure Act that pumped trillions of dollars into the economy.
That money had to go somewhere, and initially, it went to the companies that provided the equipment needed to repair and replace roads and bridges and to those who built data centers.
But 2024 has been a different story for the sector. Many outperforming stocks are now the market laggards. However, with Federal Reserve chair Jerome Powell all but assuring the market that interest rate cuts are on the way for the first time since 2019, industrial spending should pick up.
That means it's time to rotate into industrial stocks, many of which offer safe, growing dividends to boost an investor's total return.
Quick Links
- Caterpillar
- Deere & Co.
- Emerson Electric
- Dover
- Lincoln Electric
- Mueller Industries
- Tenaris
#1 - Caterpillar (NYSE:CAT)
Caterpillar Inc. (NYSE: CAT) leads off this list of industrial stocks with good reason. The company’s signature yellow heavy equipment is synonymous with building activity. In the last 12 months, CAT stock is up 27.8% and it’s up 18.7% in 2024. That’s encouraging because the company has missed analysts’ revenue estimates during the first two quarters of 2024.
Since the company’s Q2 earnings report in August, analyst sentiment has turned bearish, but the stock is still posting a slight gain in the 30 days ending August 28, 2024. That could mean that investors are looking at Caterpillar as a sector rotation winner.
CAT stock is down about 8% from its all-time and 52-week high set early in 2024. However, while you wait, you’re collecting a dividend that the company has increased for 30 consecutive years. Plus, the payout ratio of approximately 25% is supported by projections of high, single-digit earnings growth in the next 12 months. The next dividend increase won’t happen until 2025, but a payout of $5.64 per share is a good reason to hold shares of this dividend aristocrat.
About Caterpillar
Caterpillar Inc manufactures and sells construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives in worldwide. Its Construction Industries segment offers asphalt pavers, compactors, road reclaimers, forestry machines, cold planers, material handlers, track-type tractors, excavators, telehandlers, motor graders, and pipelayers; compact track, wheel, track-type, backhoe, and skid steer loaders; and related parts and tools.
Read More - Current Price
- $357.57
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $336.31 (5.9% Downside)
#2 - Deere & Co. (NYSE:DE)
Another iconic industrial stock for investors to consider is Deere & Co. (NYSE: DE). However, investors won’t have to wait for a dip in DE stock, it’s already underway. The stock is down 5.9% in 2024 and 4.7% in the last 12 months.
Like Caterpillar, Deere is struggling on the topline, and that weakness is also leaking into earnings. That’s due to the company’s heavy focus on agriculture, which has shown weak demand as higher interest rates affect the sector.
Companies and sectors that are the most beaten down tend to be the ones to rally the most. That may be the case with Deere, which is trading at 14.8x forward earnings, which is well below the sector average of 21.4x.
Deere also has an attractive dividend with a 17% payout ratio. That speaks to the safety of the dividend even at a time when earnings are expected to drop by approximately 4.5% in the next 12 months.
But if the economy improves, that earnings slump may be overstated. And with a dividend that has generated 20% annualized dividend growth in the last three years, DE stock may offer a rare buying opportunity.
About Deere & Company
Deere & Company engages in the manufacture and distribution of various equipment worldwide. The company operates through four segments: Production and Precision Agriculture, Small Agriculture and Turf, Construction and Forestry, and Financial Services. The Production and Precision Agriculture segment provides large and medium tractors, combines, cotton pickers and strippers, sugarcane harvesters and loaders, harvesting front-end equipment, pull-behind scrapers, and tillage and seeding equipment, as well as application equipment, including sprayers and nutrient management, and soil preparation machinery for grain growers.
Read More - Current Price
- $404.38
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 13 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $409.88 (1.4% Upside)
#3 - Emerson Electric (NYSE:EMR)
Emerson Electric Co. (NYSE: EMR) is a global leader in automation equipment and services. The company’s portfolio includes a wide range of categories that provide stable revenue. And, notably, the company is pivoting into high-margin areas such as sustainability, decarbonization, and energy transition.
EMR stock is up 6.6% in 2024, but it was up a lot more before the 11% drop after the company reported earnings in early August. However, any concerns about near-term growth should be placed in context with the company’s fundamentals.
Management expects to generate approximately $2.8 billion in free cash flow in 2024. And the company is projecting earnings growth in the high single digits in the next 12 months.
Even if that growth is delayed, you own shares of a dividend king that has increased its dividend for 67 consecutive years. It has a safe payout ratio of 11%, and the average annualized dividend growth in the last three years is just over 1%.
About Emerson Electric
Emerson Electric Co, a technology and software company, provides various solutions for customers in industrial, commercial, and consumer markets in the Americas, Asia, the Middle East, Africa, and Europe. It operates in six segments: Final Control, Control Systems & Software, Measurement & Analytical, AspenTech, Discrete Automation, and Safety & Productivity.
Read More - Current Price
- $105.22
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 4 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $124.29 (18.1% Upside)
#4 - Dover (NYSE:DOV)
Dover Corp. (NYSE: DOV) is a diversified global manufacturer of industrial equipment, including software and services across a range of industries. In its earnings presentation, the company noted its pivot towards clean energy industries.
In the last year, DOV stock is up 26.7% and it’s up over 18% in 2024. However, since the company’s July 2024 earnings report, the stock has been trading slightly lower. After a beat-and-raise quarter, there’s no immediate reason for investors to be pulling back other than the stock trading near its 52-week high. This seems like a buying opportunity.
Dover is another dividend king on this list of industrial stocks. The company has increased its dividend for 70 consecutive years and has a safe 19.7% payout ratio backed by analysts’ projections for high single-digit earnings growth. Its annualized three-year growth of 1.01% is lower than you might like, but it’s hard to beat the consistency of this recurring dividend.
About Dover
Dover Corporation provides equipment and components, consumable supplies, aftermarket parts, software and digital solutions, and support services worldwide. The company's Engineered Products segment provides various equipment, component, software, solution, and services that are used in vehicle aftermarket, waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing end-market.
Read More - Current Price
- $187.27
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 6 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $192.63 (2.9% Upside)
#5 - Lincoln Electric (NASDAQ:LECO)
When you think about industrial stocks, Lincoln Electric Holdings Inc. (NASDAQ: LECO) is a company that comes to mind. The company has over 125 years “of experience in cutting-edge products, comprehensive welding processes and automated solutions.” Lincoln Electric has the largest 3D metal printing capacity and is the world leader in advanced arc welding solutions.
LECO stock is down over 10% in 2024 as revenue has come in below analysts’ expectations in the first two quarters of the year. Although earnings are expected to increase by 8.9% in the next 12 months, Lincoln Electric did guide for a mid-single-digit decline in organic sales for the year.
But this is a company primed for a comeback as soon as capex spending increases. And investors are buying a dividend aristocrat with 29 consecutive years of growing its dividend, which has a safe payout ratio of 30%.
About Lincoln Electric
Lincoln Electric Holdings, Inc, through its subsidiaries, designs, develops, manufactures, and sells welding, cutting, and brazing products worldwide. The company operates through three segments: Americas Welding, International Welding, and The Harris Products Group. It offers brazing and soldering filler metals, arc welding equipment, plasma and oxyfuel cutting systems, wire feeding systems, fume control equipment, welding accessories, and specialty gas regulators, and education solutions, as well as a portfolio of automated solutions for joining, cutting, material handling, module assembly, and end of line testing, as well as involved in brazing and soldering alloys, and in the retail business in the United States.
Read More - Current Price
- $184.57
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 2 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $218.29 (18.3% Upside)
#6 - Mueller Industries (NYSE:MLI)
Mueller Industries Inc. (NYSE: MLI) is a mid-cap company that manufactures and sells copper, brass, aluminum, and plastic products. Despite missing on earnings estimates in the last two quarters, MLI stock is up 47% in 2024 and 80% in the last 12 months.
It seems investors are cheering a new direction for the company that accounts, in part, for the earnings mix. Mueller is acquiring the Nehring Electrical Works Company, a privately held company that manufactures copper and aluminum utility-grade transmission wire. One reason for Mueller’s interest in Nehring may be due to the growing demand for data centers that will require access to utility-grade wire.
In the last three years, Mueller has delivered annualized dividend growth of around 44%. With the acquisition of Nehring, investors may not get as big of a bump later this year, but it may make up for it in share price growth. The total return for MLI stock over the last five years is 495%.
About Mueller Industries
Mueller Industries, Inc manufactures and sells copper, brass, aluminum, and plastic products in the United States, the United Kingdom, Canada, South Korea, the Middle East, China, and Mexico. It operates through three segments: Piping Systems, Industrial Metals, and Climate. The Piping Systems segment offers copper tubes, fittings, line sets, and pipe nipples.
Read More - Current Price
- $71.53
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#7 - Tenaris (NYSE:TS)
Energy stocks have underperformed in 2024 as the price of oil fails to crack the $80 mark on a consistent basis. That’s one explanation for the poor performance of an energy-adjacent stock like Tenaris S.A. (NYSE: TS), which is down 20% in 2024.
Tenaris provides seamless and welded steel products for industrial applications, including the oil and gas industry. The company has missed on revenue and earnings expectations in the first two quarters and continues to guide to lower numbers for the remainder of the year. However, when interest rates get cut, oil and gas demand will likely increase.
The Tenaris analyst forecasts on MarketBeat give TS stock a consensus Hold rating. However, several of the price targets are above the $39 consensus target.
If you believe that lower interest rates will strengthen demand for oil and gas, TS stock is a good stock to own. The stock pays a semi-annual dividend with a 5.75% yield and a safe payout ratio of around 26%.
About Tenaris
Tenaris SA, together with its subsidiaries, produces and sells seamless and welded steel tubular products and related services for the oil and gas industry, and other industrial applications. The company offers steel casings, tubing products, mechanical and structural pipes, line pipes, cold-drawn pipes, and premium joints and couplings; and coiled tubing products for oil and gas drilling and workovers, and subsea pipelines.
Read More - Current Price
- $29.40
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 2 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $39.00 (32.7% Upside)
Industrial stocks are the backbone of the U.S. economy. But the stability of that spine doesn't come with the eye-popping growth that investors can get from technology stocks like NVIDIA Corp. (NASDAQ: NVDA).
But what these industrial stocks may lack in sizzle, they more than make up for in substance. When they are growing, it's usually at the beginning of an economy's multi-year growth cycle.
And in 2024, interest rate cuts are likely to provide the fuel for that growth. Since stocks tend to move in advance of growing earnings, you can see why analysts are starting to watch this sector closely.
You can find MarketBeat's list of the 50 largest industrial sector stocks under the Stock Lists tab. If you have more precise metrics to consider, you can use the Stock Screener tool under the Research Tools tab to filter for industrial stocks.
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