The industrial goods sector comprises companies that operate in various industries, including machinery, equipment and tools; construction materials; engineering and other services.
While the industrial or parent companies may not be household names, they're an important part of the economy that most of us use almost daily.
The sector is vital to many economic factors and has a large workforce. It's more than just an important driver of growth - it also provides jobs for several million people who work in the production and distribution of industrial products.
Industrial product stocks with dividends
Stocks in the industrial sector are a good investment because they allow investors to profit from growth and dividend income. Many companies also have established brands and competitive advantages, which can lead them to grow long-term.
Since these companies usually have a customer base that has been established for a long time and is loyal, they will most likely not feel the impact of an economic downturn as much as other types of businesses.
Industrial stocks sometimes go unnoticed because they're invested in less than other types of markets, but they can provide great dividends, solid returns, and upside potential. Here are a few examples that have a long history of paying dividends.
Deere & Company (NYSE: DE)
John Deere was rated among the most trusted brands in agriculture and construction. Investors appreciate its global presence, trusted brand reputation, and strong financials. The Company is a rock-solid industry leader with decades of profitable growth. Deere is a dividend-paying company with a current dividend yield of 1.24%.
Caterpillar (NYSE: CAT)
Caterpillar is a Fortune 100 company providing heavy equipment, engines, financial products, and insurance to customers all over the globe. Caterpillar manufactures a variety of products for several different industries, including construction, infrastructure, mining, quarrying, transportation, and utility. Like most companies in the DOW, Caterpillar also pays an attractive dividend with a yield of 2.63% at the time of writing.
Illinois Tool Works (NYSE: ITW)
Illinois Tool Works Inc. is an American company that manufactures various industrial products and equipment. ITW provides products to various industries, such as automotive components, food packaging machinery, and welding equipment. Illinois Tool Works has a long history of dividend growth, with 50 consecutive years of rising dividends. It is also a Dividend Aristocrat, meaning it will likely continue to grow its dividend for quite some time. The company has a current dividend yield of 2.66%
Eaton Corporation (NYSE: ETN)
The Eaton Corporation is a global leading power solutions company that designs and manufactures electrical, hydraulic and mechanical power technologies. Their design products make power systems operate more efficiently, safely and sustainably. Investors may appreciate Eaton because it has a dividend yield of 2.33% at the time of writing.
How to choose a good industrial product stock
There are a few different ways to look at industrial product stocks. You could look at the volume of products being manufactured by these entities and how often these items are purchased. Another approach would be to consider the financial stability of these companies and how they manage to deal with economic downturns.
Some of the best industrial stocks are those that produce high-demand products. For instance, construction materials like steel and concrete are often preferable investments. Construction does particularly well when the markets are booming.
If you're looking for plastic or chemical suppliers, choosing a company that provides these items to many industries and companies might be tempting. This is because these products are used in so many different industries. Even if the industry is struggling, you can bet that it won't prevent people from ordering products.
Best industrial product stocks
There are many industrial goods corporations and stocks in the market, a few of which could be great choices.
Making an investment in industrial goods stocks can be a great way to get more predictable returns on the global economy. U.S companies are investing heavily in new factories and developing infrastructure, which will need various products produced by these businesses.
A company to look into investing in is 3M Company (NYSE: MMM). They are a diversified company that manufactures many products, including adhesives, abrasives, and laminates.
Investors looking for a smaller industrial goods company may want to consider Fortive Corporation (NYSE: FTV). Fortive is a diversified company that manufactures various products, including tools, sensors, and software. The company has a strong track record of execution and is currently amidst a major transformation.
Another choice is Johnson Controls International (NYSE: JCI), a multinational company that manufactures and supplies HVAC systems, building controls, and related services. The company has three divisions: climate control, fire & security, and energy management.
Finally, there’s Rockwell Automation (NYSE: ROK), an industrial automation and information management provider. Rockwell Automation’s product portfolio includes control systems, software, hardware and services that are used to improve productivity, quality and uptime.
Industrial growth stocks
Industrial growth stocks are stocks of companies in industries expected to grow in the future. These companies typically have underlying profit margins that are higher than the average industry and often have a low price-to-earnings (P/E) ratio.
The general rule is that you should invest in growth stocks when they trade below the market average P/E ratio and have a strong earnings growth rate. You can also invest in growth stocks by investing in ETFs or mutual funds specializing in them.
A key idea of investing in ETFs is to choose one that has a low expense ratio, as these fees can rapidly eat into your gains and affect your long-term compounding returns.
General Electric (NYSE: GE) is an example of an industrial growth stock. The company is a diversified manufacturer that has been around for over 130 years. They have grown from just being a producer of light bulbs to a company that produces medical equipment and aircraft engines.
Industrial gas stocks
Industrial gas stocks are companies in the industrial gas industry. They usually sell gases to many customers, from small businesses to multinational companies.
The demand for this company's products is expected to be incredibly high, with various factors driving its growth. These include the increasing popularity of natural gas in power generation and the growing use of welding and cutting gases.
Industrial gas stocks are less volatile than other energy stocks. If you need stability, this might be the stock for you. They can also provide high dividend yields that are higher than most other investments on the market.
For example, Linde (NYSE: LIN) – one of the largest industrial gas companies in the world – offers a dividend yield of 1.68%. Industrial gas stocks are worth considering if you're looking for a way to play the natural gas space.
Difference between the industrials vs materials sector
The industrials sector is generally more cyclical than the materials sector. This means that industrials stocks tend to do well when the economy is growing and poorly when the economy is contracting.
The materials sector is generally more sensitive to changes in commodity prices. The change in the price of oil or iron ore, for example, can have a significant effect on the price of these stocks.
The industrials sector is generally considered a more defensive sector, while the materials sector is generally considered a more offensive sector. Investors typically use sector analysis to identify opportunities and allocate their portfolios.
For example, an investor who is bullish on the economy may choose to overweight the industrials sector, while an investor who is bearish on the economy may choose to overweight the materials sector.
When do industrial product stocks do well?
Industrial stocks do well when the economy is doing well. When there is an economic slowdown, people buy less and demand for industrial products decreases. This leads to a decrease in production and a decrease in profits for these companies.
Industrial stocks are less volatile than other stock sectors, like technology or finance. They are more stable and predictable than other sectors because they are affected by economic changes, not just market changes. It is also not uncommon for companies in the industrial sector to change their business models, which can make them difficult to predict.
Are industrial product stocks cyclical?
We can say with certainty that there are cyclical tendencies in industrial stocks. As a result, they fall and rise along with the economy at large.
There are a few reasons why this is the case. First, to many industrial companies, consumer spending is very important. When people feel confident and spend freely, businesses tend to do well. But businesses often suffer when the economy slows down, and consumers tighten their belts.
One of the reasons why industrial stocks are often cyclical is because they're closely tied to the housing market. When the housing market is booming, the demand for construction materials and other items used in homebuilding goes up. When the housing market weakens, demand for these goods also falls. Generally, industrial stocks tend to move in cycles along with the economy. There are always exceptions to every rule, and it isn't accurate to say that all industrial stocks are cyclical.
Industrial product stock ETFs
If you'd like to invest in industrial product stocks, one way to do so is through industrial goods exchange-traded funds (ETFs). These allow you access to a wide range of companies involved in the production of goods used in manufacturing and construction.
You can find several industrial goods ETFs. These investments can be broadly diversified or specialize in generating returns that are competitive with those available in the actual sector.
Industrial goods ETFs can offer some benefits to investors. They provide exposure to a sector that is often less volatile than the overall stock market and offer the potential for strong dividend growth. Industrial goods ETFs also offer diversification benefits, as they tend to have a low correlation to other asset classes.
One of the largest industrial goods ETFs by assets is iShares US Industrials ETF (BATS: IYJ). IYJ tracks an index of large- and mid-cap U.S. stocks involved in industrial goods and services. IYJ's top holdings include 3M, Honeywell, and General Electric.
Another industrial good ETF includes the SPDR S&P Kensho Smart Mobility ETF (NYSEARCA: HAIL)
