3 Safe Industrial Stocks That Will Give You Passive Income for Years

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Investors looking for a safe and reliable stream of income should look no further than the Parcel Manager UPS (UPS 0.98%); aerospace and defense giant Raytheon Technologies (RTX 2.00%); and distributor of heating, ventilation, air conditioning and refrigeration (HVACR) parts watsco (BSM 3.40%). All three hold dominant market positions and offer the prospect of many years of rising dividends to come.

1. UPS is high value stock

The case for buying UPS isn’t just based on its leadership position in package delivery; it’s also about how UPS maximizes profitability in its end markets. It is a common mistake to assume that because Amazon builds its own network, UPS will suffer.

The reality is that there is enough demand for everyone, and UPS’s current strategy reflects that. Instead of seeking delivery volume for volume’s sake, UPS’s transformation strategy of focusing on growing business with targeted end markets (such as small and medium business, healthcare, e-commerce business-to-business and high-growth international businesses) is proving to be very successful.

As such, the company is a year ahead of its 2023 revenue and profit targets. Additionally, CEO Carol Tome’s “better, not bigger” approach involves a willingness to forego less profitable deliveries. For example, Amazon’s volume and revenue decline this year accordingly.

Everything points to a company focused on efficiently sweating its existing assets to generate profits, cash flow and dividends for investors. Additionally, given the long-term trend toward e-commerce (accelerated by the pandemic), UPS should deliver strong dividend growth for many years to come. Now trading at a dividend yield of 3.1%, UPS is a great option for investors looking for dividends.

2. Raytheon Technologies is the choice of the aerospace and defense industry

Raytheon Technologies was created by merging the aerospace-focused business operations of the former United Technologies with the defense-focused businesses of Raytheon in the spring of 2020.

Amid the global pandemic that began around this time, Raytheon investors must have wondered what they got themselves into, with shutdowns and travel restrictions seriously threatening the future of the aviation industry. commercial.

That said, the tables have now turned and most investors can see the benefit of having a balanced portfolio of companies (aerospace and defence). For example, the defense business supported Raytheon during the worst of the pandemic, and now that commercial aviation is making a comeback, commercial aerospace businesses are carrying the growth scaffold.

This is an essential balance because defense and aerospace are industries that require a large initial investment, which only materializes many years later – they both need continuous cash to support the investment.

A good example comes from Raytheon’s Pratt & Whitney (GTF) turbofan aircraft engine, which took 20 years and $10 billion to develop. With the GTF now in service (primarily on the Airbus A320 neo family of aircraft), Raytheon can expect decades of growth through sales of aftermarket parts and services.

The business balance is working, and with management planning on generating substantial cash flow in the future, today’s entry point (with a 2.4% dividend yield) is attractive.

3. Watsco is an under-the-radar gem for investors

This HVACR distributor is the most important player in a very fragmented market in the United States. As such, it has an opportunity for growth by continuing its “buy and build” strategy of expanding its geography and market share by acquiring smaller distributors and then enhancing the acquired businesses by adding products and technologies.

Additionally, given the strength of its relationships with original equipment manufacturers like Carrier (formerly part of the same United Technologies company mentioned above), Goodman, TraneYork (part of Johnson Controls), and others, the growth opportunities of the acquired businesses are substantial.

However, it’s not just about growth; Watsco also has defensive quality to its profits. If, for example, you have an air conditioning unit, you will probably need it at some point in its life. These recurring expenses constitute Watsco’s recurring revenue stream.

All in all, a combination of strong and reliable growth prospects and a 3.1% yield make Watsco a buy for investors looking for income.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Lee Samaha holds positions with Trane Technologies plc. The Motley Fool holds positions and recommends Amazon and Watsco. The Motley Fool has a disclosure policy.

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