Despite interest rate hikes and recessionary fears, the industrial sector is anticipated to remain buoyed. New developmental activities could boost industrial demand in the years to come.

The bipartisan infrastructure law was implemented about a year ago. In the law, the Biden administration has announced over $185 billion in funding and over 6,900 specific projects across all 50 states, boosting the industrial sector.

Additionally, the Senate recently passed a $1.70 trillion omnibus package. The package provides $772.50 billion on non-defense, non-veterans-related programs, representing a 5.5% increase. 

Furthermore, the global construction equipment market is projected to grow at a CAGR of 5.3% to reach around $245.30 billion by the end of 2028, driven by factors like the increase in government spending on infrastructure development.

Given the sector’s bright growth prospects, fundamentally strong dividend-paying industrial stocks BHP Group Limited (BHP), Caterpillar Inc. (CAT), and Tennant Company (TNC) could be solid buys now to garner stable returns and protect your retirement portfolio.

BHP Group Limited (BHP)

Headquartered in Melbourne, Australia, BHP operates globally as a resources company. The company operates through three segments: Copper; Iron Ore; and Coal. Along with mining, it provides other services such as towing, freight, marketing and trading, marketing support, finance, administrative, and other services.

On December 22, BHP announced its plans to acquire Australian copper miner OZ Minerals for A$9.60 billion ($6.52 billion) through a Scheme Implementation Deed (SID). The deal is expected to bolster the company’s market position.

On December 12, I-Pulse Inc. and I-ROX SAS announced a comprehensive collaboration arrangement with BHP. The collaboration is expected to enhance BHP’s growing portfolio of options with the potential to improve the competitiveness of its current business.

On August 16, BHP decided to pay a final dividend of $1.75 per share, which was payable on September 22. Its annual dividend of $7.00 yields 11.4% on the current share price. It has a four-year average yield of 7.79%. Its dividend payouts have grown at 37.6% and 33.1% CAGRs over the past three and five years, respectively.

For the year ended June 30, 2022, BHP’s revenues increased 14.4% to $65.10 billion. Its underlying attributable profit and underlying earnings per ordinary share came in at $23.82 billion and $4.71, increasing 39.5% and 39.4% year-over-year, respectively. Also, its underlying EBITDA came in at $40.63 billion, up 15.9% year-over-year.

For the fiscal year 2023 (ending June 2023), Street expects BHP’s EPS to increase 6.6% year-over-year to $5.01. The revenue is expected to come to $53.79 billion for the same period.

Over the past six months, the stock has gained 12.7% to close the last trading session at $61.41. Moreover, it has gained 19.9% over the past three months.

BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has a B grade for Value and Quality. Out of the 36 stocks in the B-rated Industrial – Metals industry, it is ranked first.

To see the other ratings of BHP for Growth, Momentum, Stability, and Sentiment, click here.

Caterpillar Inc. (CAT)

CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company operates through its five segments: Construction Industries; Resource Industries; Energy & Transportation; Financial Products; and All Other.

On December 15, CAT announced a collaboration with Luck Stone, a crushed stone, sand, and gravel producer, to deploy CAT’s autonomous solution to Luck Stone’s Bull Run Plant in Chantilly, Virginia. This is anticipated to expand its autonomous truck fleet.

On November 22, CAT announced a successful demonstration of its first battery electric 793 large mining truck and declared a significant investment to transform its Arizona-based proving ground into a sustainable testing and validation hub.

On December 14, CAT announced a quarterly dividend of $1.20 per share, payable to shareholders on February 17, 2023. CAT has paid a cash dividend annually since the formation of the company and a quarterly dividend since 1933.

Its annual dividend of $4.80 translates to a 2.02% yield on the current price. CAT’s dividend payments have grown at CAGRs of 6.9% and 8.3% over the past three and five years, respectively. Its four-year average dividend yield is 2.47%.

For the fiscal third quarter ended September 30, CAT’s total sales and revenues increased 20.9% year-over-year to $14.99 billion. Adjusted profit rose 43% from the prior-year quarter to $2.08 billion, while adjusted profit per share improved 48.5% year-over-year to $3.95. Adjusted operating profit came in at $2.47 billion, up 45.6% from the prior-year period.

The consensus EPS and revenue estimate of $4.01 and $15.82 billion for the fiscal fourth quarter ending December 2022 indicates a 49% and 14.7% year-over-year increase, respectively. Moreover, CAT has an impressive surprise earnings history, as it topped consensus EPS estimates in each of the trailing four quarters.

CAT’s stock has gained 39.3% over the past three months and 26.5% in the past six months to close its last trading session at $237.54.

CAT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to Buy in our proprietary rating system.

The company has a B grade for Sentiment. In the 79-stock, B-rated Industrial – Machinery industry, CAT is ranked #13.

Click here to see the POWR Ratings for CAT for Growth, Value, Momentum, Stability, and Quality.

Tennant Company (TNC)

TNC designs, manufactures, and markets floor cleaning equipment in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.  The company offers its products to contract cleaners and businesses through direct sales and service organizations, as well as through a network of authorized distributors.

On October 26, TNC announced a 6% increase in its quarterly dividend to $0.265 per share, which was payable to shareholders on December 15.

TNC’s President and Chief Executive Officer, Dave Huml, said, “This increased dividend reflects the company’s strong financial foundation, disciplined capital allocation prioritization, and commitment to generating long-term value for our shareholders.”

TNC’s annual dividend of $1.06 translates to a 1.77% dividend yield. It has a four-year average dividend yield of 1.33%. Furthermore, its dividend payouts have grown at 4.9% and 3.9% CAGRs over the past three and five years, respectively.

For the fiscal third quarter ended September 30, TNC’s net sales came in at $262.90 million. Its adjusted net income came in at $18.60 million, while adjusted net income per share for the quarter stood at $0.99.

Street expects TNC’s revenue in the fourth quarter ending December 2022 to come in at $289.07 million, indicating an increase of 4.6% year-over-year. Also, the company’s EPS is expected to grow 70.9% year-over-year to $1.21 in the same quarter.

TNC has gained 3.8% over the past six months to close the last trading session at $59.84. It has gained 1.5% over the past three months.

TNC’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.

The company also has a B grade for Value and Stability. It is ranked #12 in the Industrial – Machinery industry.

To get TNC’s ratings for Growth, Momentum, Sentiment, and Quality, click here.

BHP shares were trading at $61.85 per share on Friday afternoon, up $0.44 (+0.72%). Year-to-date, BHP has gained 28.31%, versus a -18.28% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...

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