Technology may change the industrial factory, but the basic need to produce goods and services will never disappear. Investors have tons of options in this area. Do you want a diversified conglomerate? Companies like Honeywell International(NASDAQ: HON) and Illinois Tool Works(NYSE: ITW) have you covered. Want to invest in aviation and the technology defending the U.S. and its allies? Consider RTX(NYSE: RTX).
These three companies serve different needs and markets, but the common thread is the ability to adapt and evolve. All three have positioned themselves for sustained success, evidenced by their ability to pay increasingly higher dividends to their investors.
Not only can you own all three for just about $600 today, but they are all compelling buy-and-hold-forever ideas.
1. This blue chip conglomerate continues to shuffle its portfolio
Buying and selling pieces of your company can be risky, but it can also pay off if done well. Honeywell is in another evolutionary phase today, underlined by about $10 billion in announced acquisitions since last year, plus the looming spinoff of its Advanced Materials business, a move intended to simplify Honeywell's portfolio. Honeywell was founded more than a century ago, so this is just another instance of an old dog learning new tricks. Honeywell is aligning its business for growth by concentrating on three megatrends: automation, aviation, and clean energy.
After the Advanced Materials spinoff, Honeywell's primary segments will include aerospace technologies, industrial automation, building automation, and energy and sustained solutions. What's not expected to change is Honeywell's excellent financial management. The company boasts an A credit rating from Standard & Poor's and has paid and raised its dividend for 14 consecutive years.
The stock's starting dividend yield is just under 2% today, and analysts expect the company's earnings to grow by an average of 8% to 9% annually during the next three to five years. Investors looking for a company with a proven ability to remake itself and continually reward shareholders should look closely at Honeywell.
2. A three-headed beast in aerospace
The merger of Raytheon and United Technologies formed RTX, a juggernaut in the aerospace industry. Its Collins Aerospace segment makes various control and technology systems used in public and military applications. Its Pratt & Whitney segment builds engines and power systems for commercial and military aircraft. Lastly, the Raytheon business supplies various weapons and technology to the U.S. military and its allies.
The defense sector has grown over the long term because the U.S. since World War II has invested heavily in its defense as a national security priority. The global aviation sector is also primed for years of growth due to continued population growth and an increasingly global economy. It's hard to picture RTX missing out on these growth opportunities. Analysts estimate RTX's earnings will grow by an average of 10% annually over the long term.
The company has paid and raised its dividend for 31 consecutive years, and the stock yields about 2% today. Additionally, the payout ratio is only about half of RTX's estimated 2024 earnings, so thanks to the company's healthy payout ratio and earnings growth outlook, investors should expect the dividend to incraese faster than inflation.
3. An industrial conglomerate that's a Dividend King
Illinois Tool Works is one of the most storied dividend stocks on Wall Street, let alone the industrial sector. The company has paid and raised its dividend for 61 consecutive years, making it part of the rarified Dividend Kings club. The company's secret to success is simple: It strategically enters niche markets throughout the industrial landscape. Its primary businesses today include automotive, construction products, food equipment, polymers and fluids, specialty products, test & measurement and electronics, and welding.
The beauty of such a diverse business model is that since no segment contributes more than 20% of sales, it can endure industry downturns because it's less likely that the entire business suffers at once. That alone isn't enough, though. Management takes exceptional care of the balance sheet, which carries an A+ rating from Standard & Poor's. The dividend itself only accounts for about 60% of Illinois Tool Works's estimated 2024 earnings, which isn't bad considering the dividend continually increases.
Illinois Tool Works probably won't knock your socks off. The stock yields a solid 2.3% today, but analysts estimate the company's earnings will only grow by an average of 6% annually during the next three to five years. However, the sum of its parts and the consistent, dependable growth you get will add to significant returns over time. When you hold a stock forever, consistency is arguably more important than anything, and it's hard to find a more proven industrial operator than Illinois Tool Works.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool recommends Illinois Tool Works and RTX. The Motley Fool has a disclosure policy.
