Established manufacturing stocks offer reliable income.
To hear some politicians tell it, U.S. manufacturing stocks are not quite what they used to be. In fact, President Joe Biden has made some big promises in 2021 about revitalizing the sector via a “made in America” push. Contrary to what you might think, China is not stealing domestic manufacturing jobs willy-nilly — and, in fact, U.S. manufacturing productivity has steadily been rising over the last three decades even as some of those old blue-collar jobs have been replaced by automation. There are plenty of manufacturing stocks that offer stable and reliable returns for investors, even if they are admittedly not as interesting as Big Tech icons that dominate headlines. If you’re interested in playing a potential uptrend in U.S. manufacturing based on political trends in 2021, then you should start by looking at these established domestic picks that already have a strong track record of success to build on.
Caterpillar (ticker: CAT)
Caterpillar is an iconic U.S. manufacturing stock that is best known for its heavy construction equipment that includes backhoes, excavators and pavers. However, particularly after its acquisition of mining equipment company Bucyrus in 2010, Caterpillar has been a player in a host of other categories of machinery including industrial gas turbines, rotary drills, locomotives and even integrated systems for the power generation industry. If there is any rebirth of American manufacturing in 2021, CAT is sure to benefit — as it would from any infrastructure spending boom or financial stimulus that increases demand for its core construction operations.
Current yield: 2.1%
Another big name in the U.S. manufacturing sector, Cummins is a top provider of diesel and natural gas engines, as well as related products and services worldwide. In the last decade or so, however, CMI has also evolved to become a big player in power systems — including what CMI calls “new power” such as hydrogen fuel cells, generators, battery storage and other systems. Though tied in to the somewhat cyclical sales of vehicles like buses and pickup trucks, Cummins is well positioned to benefit from any manufacturing resurgence that takes place in the coming months to build on recent gains of around 15% in the last six months or so.
Current yield: 2.2%
Emerson Electric Co. (EMR)
Emerson Electric designs and manufactures technology and engineering products that include compressors and pumps for the oil and gas industry, measuring instruments for chemicals firms, automation systems for food and beverage companies and a host of other items with diverse applications including thermostats and sensors. EMR is in a great position to benefit from manufacturing upswings because in addition to being in the sector itself, many of its key customers are also manufacturers themselves who need Emerson’s gear to get things done — and in the meantime, shareholders enjoy a quarterly payout of around 50 cents per share.
Current yield: 2.4%
Fastenal Co. (FAST)
Like Emerson, Fastenal is a double threat because its clients are also in the manufacturing sector. As the name implies, this $27 billion company is all about fasteners. These include everything from old-school hardware such as bolts, nuts, screws and the like, but also a wide array of specialty products that include metal framing systems, wire ropes, rivets and sheet metal, plumbing supplies and just about anything else you can think of where two things are being held together. The Minnesota-based company may not make a ton of money on one individual fastener, but moving millions of these products through a huge network of roughly 3,200 in-market locations allows it to really dominate this niche.
Current yield: 2.4%
Illinois Tool Works (ITW)
Illinois Tool Works manufactures and sells industrial equipment worldwide to serve a wide variety of industries. It provides automotive parts, cooking and refrigeration appliances for the food industry, arc welding gear for construction firms and a wide array of other products that serve a narrow audience individually but collectively add up to a $64 billion U.S. manufacturing powerhouse that generates about $14 billion annually in sales. Without a lot of other options for this kind of gear, its customers are loyal and reliable — which, in turn, supports a nice stream of cash via ITW’s dividends to shareholders.
Current yield: 2.2%
Kennametal is a unique company that focuses on “super hard” materials that can withstand extreme wear under very specialized circumstances. One obvious example comes in its metalworking tools, where its machine drills and mills have to be durable enough to cut through or shape metals without falling apart themselves after just a few uses. Kennametal also makes high-pressure nozzles, specialty alloys for aerospace companies, heavy earth-cutting equipment to clear rock and debris, and plenty of other tough tools. For businesses that are tough on their gear, KMT is a go-to U.S. manufacturing stock. The $3 billion company has outperformed lately with around 20% returns in the last six months, and it has the wind at its back in 2021.
Current yield: 2.2%
Wisconsin-based company Snap-on is a major player in tools, equipment and diagnostics tools that are necessary for maintenance and repairs across a host of industries. Some are the boring old wrenches, pliers and screwdrivers you probably have in your garage gathering dust, but SNA’s product line is deep enough to include landscaping tools, industrial-grade impact wrenches for the construction industry, diagnostic software solutions for automobile dealers and repair shops, and a wide array of other items. When it comes to routine maintenance or repairs caused by a breakdown, Snap-on likely has the tool for the job. And thanks to steady demand for all kinds of maintenance and repair services, Snap-on investors can depend on steady dividends as it generates reliable income.
Current yield: 2.6%
Seven U.S. manufacturing stocks that pay dividends:
— Caterpillar (CAT)
— Cummins (CMI)
— Emerson Electric Co. (EMR)
— Fastenal Co. (FAST)
— Illinois Tool Works (ITW)
— Kennametal (KMT)
— Snap-on (SNA)
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