When it comes to investing in retirement, stability is the key word. Consistent earnings growth with a helping of rising dividend payments is exactly what investors need to get through their golden years. You’re not looking for homeruns, but constant singles and doubles. You can’t afford the strike-outs when trying to swing towards the fences. And when it comes to consistent earnings growth and dividends, no other sector has it like the major industrials.
As the “bedrock of America,” most industrials have been churning out stable returns and growing dividends for years. In some cases, for more than a century. You can practically set your watch to their cyclical nature. But boring doesn’t have to mean low or no growth.
Many of the largest heavy manufacturing firms have expanded into new markets, such as Asia and products such as renewable energy. These moves will ensure that the growth and earnings power continues for decades. With that in mind, the solid nature of industrials make an ideal portfolio choice for retirement investors.
Here’s one stock, one exchange traded fund and one mutual fund to add to your retirement portfolio today.
Industrials for Retirement Investors: Honeywell International Inc. (HON)
As I said in the opening, stability and dividends are what retirement investors are looking for when it comes to industrial stocks. And manufacturing conglomerate Honeywell International Inc. (NYSE:HON) fits the bill.
Founded nearly 125 years ago, HON has grown from just being a producer of thermostats to being one of the largest manufacturers on the planet. Sure, the namesake thermostats are there, but there’s also everything from films used in medical drug packaging to gas turbine engines. That huge product line has allowed this industrial stock to navigate some pretty rough economic waters over its history.
Also helping it navigate has been its focus on efficiency and reducing costs. HON has had a long history of squeezing extra cost savings from its portfolio of assets to help it improve and beat on profitability during periods of declining revenue. That continues today.
Those moves only help strengthen HON’s profits and cash flows when manufacturing enters the next upswing in the business cycle. In the end, that’s helped HON generate a 50% increase in its earnings per share over the last five years. Investors have won with a triple total return in that time.
Investors have also won on the dividend front as well. Honeywell currently has a 2.05% dividend yield. But it has managed to grow that payout by an average of 11% over the last 10 years.
The combination of a huge product portfolio, strong earnings growth and dividends make HON stock a prime way for retirement investors to play the industrials.
Industrials for Retirement Investors: iShares U.S. Industrials ETF (IYJ)
For investors looking for an indexed approach to industrial stocks, the iShares U.S. Industrials ETF (NYSEARCA:IYJ) makes a good bet.
IYJ tracks the Dow Jones U.S. Industrials Index, which shouldn’t be confused with the venerable Dow Jones Industrials that we see plastered on every financial publication and on T.V.
IYJ’s index is actually a broader measure of manufacturing stocks in the U.S., covering large- and mid-caps. Rather than just holding 30 stocks, IYJ holds a much larger 213. These read like a who’s who of manufacturing muscle and include such forms as Caterpillar Inc. (NYSE:CAT), United Technologies Corproation (NYSE:UTX) and General Electric Company (NYSE:GE).
That broad coverage of the main industrials in the nation has allowed it to gather some impressive assets. It also has allowed it to perform well. IYJ has managed to return an average of 7.56% per year over the last ten years. The ETF can also be seen as an income play with its 1.47% dividend.
While that isn’t a super high yield, it is currently beating and tying rates on treasury bonds. With that yield plus capital appreciation, the ETF has just enough steady growth to keep a portfolio growing.
Meanwhile, expenses for IYJ remain low at just 0.44%, or $44 per $10,000 invested.
Industrials for Retirement Investors: Fidelity Select Industrials Portfolio (FCYIX)
When it comes to actively managed mutual funds covering the industrials, the Fidelity Select Industrials Portfolio (MUTF:FCYIX) is one of the best. It currently has a four-star rating from Morningstar.
Manager Tobias Welo tends to focus his attention on industrials that are cheaper than their respective peers in individual sub-sectors of the market segment. That sometimes means avoiding the most popular names and loading-up on out of favor industrial stocks.
Right now, he has a big bet on trucking and airlines. This focus on “cheap” produces a very concentrated portfolio of holdings. Currently, FCYIX only has 45 different industrials among its $1 billion in assets.
However, that focus hasn’t hurt returns.
Since Welo took over the fund’s helm, FCYIX has been a great performer. Fidelity Select Industrials has managed to post 9.66% average annual returns over the last ten years. That bests the return of the S&P 500 and the fund’s benchmark — the MSCI IMI Industrials 25/50.
The fund’s success and asset gathering ability has also been a boon for investors in another way. Namely, low expenses. FCYIX currently charges just 0.77% to own. That’s about half of its category average. Needless to say, when it comes to an active way to play the industrials, FCYIX is the all-around best choice for retirement investors.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
