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Volatility persists in the economy, as the International Monetary Fund has predicted the globe's economy to grow by only 3.8% in 2014. Nevertheless, the diversified industrial industry is showing strong growth both this year and for fiscal 2014. In the last year alone, this industry has returned an unbelievable 38.7%. Seeing strong third quarter results, analysts predict earnings growth to be at around 15.8% the fourth quarter and 10.8% in 2014. Based on Fitch, the outlooks for U.S. diversified industrials are stable for 2014, reflecting the exposure of these companies to a wide range of industries and geographic regions. These companies boast strong business models and are consistently working on enhancing their product portfolios to capture new markets, making divestures of non-core businesses and achieving strong cost management to enhance profitability. Additionally, these companies have the ability to generate strong flows, which allows them to return significant cash to shareholders.

In light of this, in this article I pick four companies from this industry whose strong business models have been generating massive returns for investors in a volatile economic environment. I'll take a closer look at their business strategies, financial situations and future prospects to determine each company's ability to sustain returns for investors.

Eaton Corporation (NYSE:ETN) is a power management company offering energy-efficient solutions. Eaton continues to work on expansion of its business through acquisition and product innovation, as well as to seek breakout opportunities in order to capture higher-margin, higher-growth market shares. Over the past decade, Eaton has made 50 acquisitions and 10 joint ventures, which has established a strong foot print future growth. The company's aggressive expansion strategy is working out, as in the past three years, on average, its top line growth was high at 11.2%. On top, it reached a record sales growth of 42% in the past quarter alone, led mainly by the recent acquisition of Cooper Industries. Further, following its top line growth, Eaton's cash flows reached record levels in the last twelve months. Its operating cash flows are $2.1 billion and free cash flows are at $1.5 billion, while dividend payments accounts for only $725 million. With its low payout ratio of 36% and massive free cash flows, Eaton offers considerable room for dividend increases, even though it has already been making huge increases in dividends. This remarkable financial performance is also impacting its share price, which has surged over 247% in the past five years alone.

Honeywell International, Inc. (NYSE:HON) serves customers with aerospace products and services, control, automotive products, turbochargers, chemicals, and sensing and security technologies. It operates mainly in four business segments: Automation and Control Solutions, Performance Materials and Technologies, Aerospace, and Transportation Systems. Both its short-cycle businesses like Safety and Security, Turbo Technologies, and Energy as well as the long-cycle businesses are maintaining healthy backlogs for the company. Thus, in the past three years, its revenue growth was at 6.5% and in the past quarter, sales increased by 3% to $9.6 billion. However, with improving production capabilities and strong cost management across its portfolio, margin expansion was high at 130 bps and, consequently, EPS went up by 10%. This performance allowed the company to increase its full year EPS projections of 4.90 to 4.95/share. Further, its free cash flows are twice its dividend payments of $1.3 billion. With such massive free cash flows and a payout ratio of only 40%, Honeywell's current dividend of 0.45/share looks completely safe to me.

Illinois Tool Works (NYSE:ITW) operates in across its Construction Products, Industrial Packaging, Transportation, Power Systems and Electronics, Food Equipment, and Decorative Surfaces business segments. Nevertheless, these diverse segments all work in tandem under the same Enterprise Strategy, focusing on three key initiatives: business structure simplification, strategic sourcing, and portfolio management. Additionally, with its portfolio management program, Illinois is seeking to build a business portfolio that leverages its business model. On average, this strategy is generating amazing growth in its top and bottom line over the past three years. The company's revenue growth is at 8.6% and net margin is at 13% of sales. Moreover, its free cash flow conversion is solidly over 100% of net income, which has allowed it to increase dividends by 250% in the past five years. Still, the company's free cash flows allow for potential dividend increases as they are standing at $732 million, while current dividend payments account for only $171 million. With its massive free cash flows and focus on its effective Enterprise Strategy, I believe Illinois' dividends are completely safe.

United Technologies (NYSE:UTX) provides high technology products and services to aerospace industries and building systems worldwide. The company's approach continues to be the maintenance of its diversified portfolio of businesses, as it operates in a number of business segments including Sikorsky, UTC Climate, Controls & Security, Pratt & Whitney, UTC Aerospace Systems and Otis. Along with acquisitions and dispositions, the company is aggressively working to capture emerging markets like China and India, and in the recent quarter, its sales from emerging markets grew by 11% over the prior year quarter. Further, the creation of UTC Building better positions the company to capture growth opportunities in emerging markets. United Technologies' restructuring and disposition of non-core businesses will continue to enhance cash reserves and allow the company to keep its focus on growth opportunities. The company's financial situation continues to be strong; though its top line is bit slow, with restructuring and strong cost savings paved by UTC, the company looks to increase its bottom line by 13% at the end of the recent quarter. Further, in light of the company's recent action to increase dividends by 10%, bringing them to 0.59/share, United Technologies looks completely safe, having the potential to generate strong cash flows as seen in its high price to cash flow ratio of 16.1 and low payout ratio of 38%.

Final Notes

Despite the looming uncertainties impacting this industry's ability to generate consistent growth, these four companies I've discussed here employ strategies of maintaining a balanced portfolio and investments in key growth opportunities. Thus, all four are in a strong position to seize emergent opportunities in developing nations. Based on their solid performance and winning strategies, I believe these companies are well set to continue generating strong returns.

Source: Is Diversified Industrial A Safe Place For Conservative Investors?