Some Industrial dividend stocks have dipped 25-30% from their 52-week highs. I believe they give a sense that the sector isn’t doing well, but is there value to be found? The dividend stocks covered are Union Pacific Corporation (NYSE:UNP), W W Grainger Inc (NYSE:GWW), and one more.
Three companies is a small subset to draw a conclusion from, but I believe they can be telling. To look at a more representative group, check out the Industrial Select Sector SPDR® Fund (NYSEARCA:XLI) that consists of 66 Industrials.
The Industrial Dividend Stocks
These Industrial dividend stocks have tumbled in the double-digits in the past year. They have solid balance sheets with S&P credit ratings of A or better.
- At $49, Emerson Electric Co. (NYSE:EMR) has retreated 25% from its 52-week high of $65.
- Around $85, Union Pacific is 31% below its 52-week high of $124.
- At $193, W W Grainger Inc is down 26% from its 52-week high of $261.
|Ticker||Industry||1Yield||2S&P Credit Rating||3DG Streak (Years)||2Debt/Cap|
Data from close of November 17, 2015.
- Estimations from Google Finance
- From F.A.S.T. Graphs
- From CCC List found here
Are these Industrials Really Cheap?
Emerson Electric had its 58th year of dividend hike, but it was only an increase of 1%. Shareholders might not cheer about this, but on the positive side, it shows the company is committed to growing its dividend. Additionally, Emerson Electric is being careful because for FY2015, net sales decreased by 9%, and EPS was down 15%.
Emerson Electric expects continued headwinds at least in the first half of FY2016. Adding in that it’s spinning off its lower margin Network Power business in 2016, investors are better off waiting until after the spinoff completes before buying.
Union Pacific is a railroad leader with a strong franchise and a robust network with strategically placed terminal locations. It also has broad port access and border and interchange coverage.
Source: Baird’s 2015 Industrial Conference – Slide 3 (pdf)
EPS was down 2% in Q3 2015 compared to the same period last year, and EPS is expected to be down by about 2% for this year.
Now that the Union Pacific shares have retreated to a multiple of around 15, it’s not a bad valuation to pay for its long-term prospects that remain solid. Goods need to be transported in good or bad economies. With a diversified business mix, Union Pacific should be able to withstand softer demands.
W W Grainger
Recently, W W Grainger updated its fiscal year 2016 earnings per share (EPS) guidance to $10.70-12.90, which was below consensus analyst estimates. The lower guidance brought the shares to below $200.
If its EPS really ends up on the low end, its forward multiple would be around 18 which is close to its normal multiple of around 19. So, in my opinion, shares of W W Grainger are fairly-valued today.
Overall, I feel it’s better to wait. But the recent 25-30% pullbacks could be a good entry point to ease in for long-term investment.
If I had to buy one company today, I’d go with Union Pacific. I would wait for Emerson Electric to complete the spin off before considering it. As for W W Grainger, with its lower EPS guidance, the near-term outlook has dimmed, and so I think it’s better to wait a quarter or two.
Have you added to any Industrials lately or are you waiting? Which are your favorites?
The first version of this article appeared on Seeking Alpha as Is It Time To Buy These Industrials Yet?
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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