These two dividend stocks are aimed at long-term growth. Once they are on sale racks at the market, you need to start buying them.
Industrial stocks have fallen sharply over the past year, and despite the recent pullback, the sector is up nearly 20%.acquire companies like Eaton (ETN 2.27%) and emerson electric (EMR 0.27%) Either way, you’ll be paying at or near top dollar today.
Both are well-positioned for the future, so the valuations here make some sense. However, the recent sharp sell-off in the industrial sector highlights that markets can be a little irrational at times, and a deeper stock market decline could present a long-term buying opportunity. Here’s why these two stocks should be on your wishlist today.
Eaton controls power
Eaton has a long history in power management, but the types of power have changed over time. It started over 100 years ago in the automotive field.
Currently, approximately 70% of the company’s revenue comes from its North American and global electric operations. The company sells its products to manufacturers and construction companies who want to control how electricity is used in their products and buildings. The company also makes products for the aviation industry, the internal combustion engine sector (something of a relic from the company’s past), and, more recently, electric vehicles.
However, the important point here is that in an environmentally conscious world, power management is becoming an increasingly important issue. He has two sides to this story.
First, demand is increasing from new categories such as electric vehicles, solar power, and wind power. But there’s also a second benefit, as companies want to make better use of the electricity they’re already using. It’s about improving the way buildings consume energy, or reducing the energy consumption of certain devices, such as cars or lighting arrays. Eaton is here to help you every step of the way.
What’s interesting here is that Eaton has a huge backlog of work, indicating huge demand in this area. The backlog at the end of the fourth quarter of 2023 was $9.5 billion, up from $2.8 billion in the same quarter of 2019. Clearly, the company’s ongoing business transition is paying off.
However, the current dividend yield is only 1.1%. This is near the lowest level in decades, but if the stock sells, the yield could return to an attractive range. A yield above 2.5% is probably a very good entry point and worth the wait for value-oriented long-term dividend investors.
EMR Dividend Yield Data by YCharts
Emerson automates the future
The story surrounding Emerson is similar to Eaton’s, but with a slightly different focus. In recent years, Emerson has eliminated old business areas (such as sink processing) so it can focus on automation. While Eaton helps businesses manage power more efficiently, Emerson helps customers manage broader business processes more efficiently. With advances in technology such as robotics and the Internet of Things, being able to see and control every aspect of your business has become increasingly technical and critical.
The backlog story is equally fascinating. As of the first quarter of fiscal 2024, the company had $7.6 billion worth of work scheduled for the future. But like Eaton, the stock has performed very well in recent years. The dividend yield is a dismal 1.9%, also near the lowest in decades. Again, something in the 3% range would be a more attractive entry point.
Emerson is the Dividend King with 67 consecutive annual dividend increases. Records like this aren’t built by chance, and it speaks to the company’s long-term focus. This could be an advantage for investors. He points out that Eaton’s dividend streak has been “only” 15 years, which is still good but not very impressive.
ETN data by YCharts
Let’s get ready today
The obvious problem with Eaton and Emerson is their valuation, using dividend yield as a rough guide. Therefore, buying today means paying top dollar.
However, the shares should not be written off. Both companies are positioning themselves for a bright future, as highlighted by their strong order backlogs. Know both now so that when the market finally moves into bearish mode, you’ll be prepared to buy while others are selling. And, as the chart above highlights, both Eaton and Emerson have witnessed drawdowns of 30% to 50% (or more) multiple times in the past. If you don’t prepare now, you may not have the courage to go against the grain and add these two industries to your portfolio when prices finally become attractive again.
