Despite the looming recession, volatile raw material prices, and supply-chain disruptions, the industrial market is expected to grow in the long term due to the modernization of production processes. So, I think it would be wise to invest in quality industrial stocks Raytheon Technologies Corporation (RTX) and Illinois Tool Works Inc. (ITW), which pay stable dividends.
The industrial sector has been growing steadily over the years. The rising adoption of industrial automation in other sectors, such as pharmaceuticals, chemicals, and oil & gas, should bolster the industrial sector’s growth. The global industrial automation market is expected to grow at a CAGR of 7.2% to $81.40 billion by 2033.
Moreover, rapid technological advances are expected to drive innovation in industrial machinery manufacturing. Technologies such as 3D printing, artificial intelligence, and big data analytics are being used in manufacturing, thus resulting in higher productivity, lower operating costs, and higher margins.
The industrial machinery market is expected to grow to $708.30 billion in 2027 at a CAGR of 6.7%.
Additionally, rapid urbanization, increased infrastructure development in emerging nations, and population and migration to cities increases the demand for the construction market. The industrial sector is expected to benefit from the expanding construction market.
The global construction equipment market is expected to grow at a CAGR of 6% until 2029.
Let’s discuss the stocks mentioned above in detail:
Raytheon Technologies Corporation (RTX)
RTX is an aerospace and defense company that provides systems and services for commercial, military, and government customers worldwide. It operates through four segments: Collins Aerospace; Pratt & Whitney; Raytheon Intelligence & Space; and Raytheon Missiles & Defense.
On April 3, RTX was awarded a $1.20 billion foreign military sales contract from the U.S. Army to provide Switzerland with the Patriot air defense system. With this, Switzerland becomes the 18th global Patriot partner and the eighth European country to choose the system as the backbone of their air defense.
RTX’s trailing-12-month net income margin of 7.75x is 19.3% higher than the 6.5x industry average. Its trailing-12-month EBITDA margin of 16.88% is 27.8% higher than the 13.21% industry average.
RTX pays an annual dividend of $2.20. This translates to a yield of 2.24% at the current market price. The 4-year average dividend yield is 2.40%. Its dividend payments have grown at a CAGR of 6% and 4.8% over the past three and five years, respectively.
During the fiscal fourth quarter that ended December 31, 2022, RTX’s adjusted sales increased 6.2% year-over-year to $18.10 billion. Its adjusted net income increased 15.7% year-over-year to $1.87 billion, whereas its adjusted earnings per share increased 17.6% year-over-year to $1.27.
RTX’s revenue is expected to increase 8.1% year-over-year to $16.99 billion during the fiscal first quarter that ended March 2023. Its EPS is expected to be $1.13 for the same quarter. Additionally, it has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 18.4% over the past six months to close the last trading session at $99.62.
RTX’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade in Growth, Sentiment, and Stability. The stock is ranked #11 in the 72-stock Air/Defense Services industry.
Click here to see the POWR Ratings of RTX (Value, Quality, and Momentum).
Illinois Tool Works Inc. (ITW)
ITW manufactures and sells industrial products and equipment worldwide. It operates through seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products.
ITW’s trailing-12-month EBIT margin of 24.05% is 147.5% higher than the 9.7% industry average. Its trailing-12-month net income margin of 19.04% is 193.2% higher than the 6.50% industry average.
On February 10, 2023, ITW announced a quarterly dividend of $1.31 per share of common stock, which is payable on April 13.
While ITW has a four-year average dividend yield of 2.30%, it pays $5.24 annually as dividends. This translates to a yield of 2.30% at the current market price. Its dividend payments have grown at CAGRs of 7% and 11.5% over the past three and five years, respectively.
ITW’s operating revenue increased 7.9% year-over-year to $3.97 billion in the fiscal fourth quarter, which ended December 31, 2022. Its operating income increased 18.2% year-over-year to $986 million, while its net income increased 48.9% year-over-year to $907 million. Also, its net income per share increased 52.8% year-over-year to $2.95.
ITW’s revenue is expected to increase 1% year-over-year to $3.98 billion during the fiscal first quarter that ended March 2023. Its EPS is expected to increase 5.8% year-over-year to $2.23 for the same quarter. Additionally, it has topped consensus revenue estimates in each of the trailing four quarters.
The stock has gained 25.5% over the past nine months to close the last trading session at $228.73.
ITW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
ITW also has a B grade for Quality, Momentum, and Stability. It is ranked #29 out of 79 stocks in the A-rated Industrial - Machinery industry.
To access additional ratings for ITW’s Growth, Sentiment, and Value, click here.
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RTX shares fell $99.62 (-100.00%) in premarket trading Tuesday. Year-to-date, RTX has declined -0.38%, versus a 7.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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