Storied history
General Electric Company (NYSE:GE) is a massive company with a storied history and a high ranking for gross revenue and profits. With a $230 billion market cap and 9.6% margins on $146 billion in revenue, GE looks pretty solid overall. And the current dividend payment of $0.19/share as of February is near the low end of General Electric Company (NYSE:GE)’s past 15 years of dividends. Since the dividends have been consistent for over a century, that’s a great sign.
Of course, not everything is coming up roses with General Electric Company (NYSE:GE). The company dropped its dividend considerably during the panic of 2008, and has only modestly risen it despite laying off a considerable portion of its American workforce and not paying any taxes on its considerable profits during 2010.
Since the record shows General Electric Company (NYSE:GE)’s top executives received 27% average pay raises during the same period in which the company wasn’t paying taxes and cut its dividend down to 2002 levels, it seems General Electric Company (NYSE:GE) would rather benefit its top employees than its investors, meaning the company isn’t the best idea for satisfying your dividend needs.
Emissions threat
Illinois Tool Works Inc. (NYSE:ITW) is a patent-rich Fortune 200 company that has a booming business in 58 countries. Also, Illinois Tool Works Inc. (NYSE:ITW) has paid 25 dividends over the past 20 quarters and shown steady growth. A growing dividend that is covered by profits tends to be a sign of security and a commitment to rewarding shareholders. In addition, Illinois Tool Works Inc. (NYSE:ITW) has shown a solid environmental commitment by having volunteers from within its ranks develop methods it has used to cut down emissions considerably.
However, the emissions level still ranks Illinois Tool Works Inc. (NYSE:ITW) within the top 100 airborne polluters in the US. As well, the company has been cited as recently as the year 2000 for illegally exporting chemicals without proper licensing and even falsifying shipping documents.
While the fines from these operations are no longer weighing on the balance sheet, a company that is willing to break laws in the course of its operation may not have investor interests at heart. You might consider when pondering Illinois Tool Works Inc. (NYSE:ITW)’ 2.4% dividend how much it will have to be cut to fund legal defenses if the Feds catch the company perpetrating any more shady activities.
Sustainable growth?
Hubbell Incorporated (NYSE:HUB.B) is a much smaller company that the previous two discussed in this article, pulling only $3 billion in gross revenue in 2012. However, the company has held steadfastly to its dividend payments since 2000. A dividend with a consistent history is a dividend you have a reasonable chance of getting for years to come. For a small company, Hubbell’s 9.9% profit margins are also fairly solid.
One issue an astute investor may be concerned about is that wire and other electrical products tend to sell well during extensive infrastructure growth phases, such as what’s been happening in India and China over the past few years. As these white-hot growth markets inevitably cool, how will Hubbell continue to grow and prosper?
Hubbell’s 2.1% dividend is nice for right now, but I would suggest watching and waiting to buy until the price goes lower — I would rate the price ideal in the $50 per-share range or less because the lower price would provide a larger margin of safety if the earnings dropped off.
Conclusion
There is a lot to think about when you consider buying a machinery company because you want dividends that’ll churn off the line for a long time to come. Will the company’s market dry up? Will it be caught doing something naughty? Can you find a good deal on it? There are all questions you should consider carefully before you buy.
The article Good Dividends in Diversified Machinery originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
