Graco Inc. (NYSE:GGG) is a $3.1-billion company that produces pumps and pumping equipment and other devices to handle and apply industrial liquids, such as lubricants, sealants, and paint. The company, which has raised dividends since 2000, currently pays a dividend yield of 2.0% on a payout ratio of 45%. Its competitors Illinois Tool Works (NYSE:ITW) and Nordson Corporation (NYSE:NDSN) pay dividend yields of 2.4% and 1.0%, respectively. Over the past five years, Graco Inc.’s EPS grew at an average annual rate of 1.3%, while its dividend increased at a rate of 6.4%. Analysts forecast that the company’s EPS growth will accelerate to an average rate of 8.5% per year for the next five years. The stock boasts a free cash flow yield of 3.5% and high ROE of 32%. Its forward P/E is at 18.6x versus a higher 25.3x for the industrial machinery industry. While elevated, the stock’s forward P/E is below the stock’s five-year average ratio. Fund managers Robert Rodriguez and Steven Romick (First Pacific Advisors—see its top holdings) own about $38 million in the stock.
Hubbel Inc. (NYSE:HUB.B) is a $4.9-billion diversified electrical supplier, serving electric utility, residential, commercial, and industrial markets. It pays a dividend yield of 2.1% on a low payout ratio of 33%. The company’s rival Eaton Corporation Plc (ETN) pays a dividend yield of 2.9%, while Amphenol Corporation (NYSE:APH) yields 0.7%. In early December, Hubbell Inc.’s Board of Directors approved accelerating the regular quarterly dividend payment from January 2013 to December 2012, to avoid higher dividend tax starting next year. The accelerated dividend will be paid on December 26 to shareholders of record on December 14. Over the past five years, the company’s EPS and dividends grew at average rates of 11.3% and 5.0% annually. The EPS is forecast to continue to grow at the same rate for the next five years. The company has a free cash flow yield of 3.5% and ROE of 19.2%. Its forward P/E stands at 15.6x, trading at a premium to its respective industry with a forward P/E of 13.8x. However, the stock’s forward P/E is below its five-year average. Billionaire fund manager Steven Cohen owns almost $117 million in the stock.
Applied Industrial Technologies (NYSE:AIT) is a $1.7-billion company selling industrial products for maintenance, repair, and operational needs. The company also supplies original equipment manufacturing applications. It pays a dividend yield of 2.1% on a low payout ratio of 32%. Its main competitors Kaman Corporation (NYSE:KAMN) and W.W. Grainger, Inc. (NYSE:GWW) pay yields of 1.8% and 1.7%, respectively. The company’s EPS increased at an average rate of 5.6% per year over the past five years. Over the same period, its dividend expanded at an average rate of 9.2% annually. A similar rate of dividend growth is likely to be sustained in the future as the company’s EPS growth is forecast to accelerate to an average of nearly 14% per year for the next five years. Applied Industrial Technologies Inc. has a free cash flow yield of 2.4% and ROE of 16.8%. The stock has a forward P/E of at 13.7x, trading at a discount to its respective industry (with a forward P/E of 19.6x). Relative to its industry, the stock is also discounted based on price-to-book, price-to-sales, and price-to-cash flow ratios. ACQ Capital’s Cliff Asness holds a small, near $11-million stake in the company.
