If you read this column with any frequency, you know that I have continued to argue that the best values in U.S. stocks market remain in defensive areas like consumer staples and utilities.
So why, then, did I just tell my Dividend Superstars subscribers to load up on two companies from the industrials sector? I'll give you the reasons in a moment. First, let's recap what constitutes an "industrial" company these days ...
Planes, Trains, Trucks (And a Whole Lot More!)
It's relatively easy to understand what a consumer staple company is — they provide things people buy no matter what. And it's easy to understand the opposite sector, too — consumer discretionary firms include retailers, restaurants and other shoppers' delights. Ditto for technology firms, utilities, and most of the other ten major sectors.
Industrials are a bit harder to define. Perhaps the easiest way to categorize them is by saying they provide the goods and services that keep businesses and entire countries humming, including:
- Airplane makers (as well as airlines)
- Railroads
- Trucking companies and delivery services like UPS and FedEx
- Farm equipment
- Heavy machinery
- And even providers of "human capital," such as outsourcing firms and recruiters
As you'd expect, most industrial companies are very sensitive to economic conditions and business cycles.
After all, when companies stop hiring ... when builders stop building ... and when packages stop shipping ... the firms that provide the "picks and shovels" slow down, too.
So If I'm Still Concerned about a Double-Dip, Why Recommend Industrials Now?
Yes, I still think the economy could slog along for quite some time, and even experience a second dip into recession.
I also still believe that the best values and the strongest income streams are generally found in groups like consumer staples right now.
However, there are a number of reasons for my latest round of industrials recommendations:
First, I believe that any stock portfolio should be diversified ... and that means I want to own companies in many sectors, even if the specific allocations I make to each group varies widely.
Second, within each sector there are companies that represent relatively good values, and that have characteristics making them unique.
For example, one of the companies I just recommended in Dividend Superstars is far less economically sensitive than the typical industrial concern. In fact, I consider it a lot more like a utility than a plane builder!
Third, I'm always watching dividend data for new trends, and as I first reported here three weeks ago, the latest information demonstrates that companies are feeling more confident about their future prospects and raising dividends more rapidly than they have in the last two years.
It's no secret ... companies can't fake dividends. It takes real earnings and real cash to send checks out to shareholders. And no Board of Directors is going to authorize a higher payment without strong reason to believe that their future business prospects can support that payment.
Moreover, in this case, it's not just the fact that companies are writing richer dividend checks that makes me more bullish on economically-sensitive companies ... it's the fact that the economically-sensitive companies themselves are the ones boosting their payments!
Take a look at my table and you'll see that ten industrial companies raised their dividends in the month of February alone!
That tells me that things are looking up fundamentally, and that these firms will be sending fatter and fatter dividend checks going forward.
To wit — both of the companies I just profiled in Dividend Superstars have not only boosted their payments already in 2010, but they are also currently yielding two and three times as much as the broad S&P 500 index.
If that isn't enough to get an income investor's heart pumping faster, I don't know what would!
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