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The industrial goods sector consists of many different firms. This sector is one of the backbones of the economy, and when the economy recovers, industrial goods stocks start to perform the best. Since January, the industrial stocks lost almost 19%, offering deep value to investors. I have looked for the top six industrial goods stocks that offer excellent dividends, and are priced with low P/E ratios. I have investigated these stocks from a fundamental perspective, adding my O-Metrix Grading System where possible. Here is a fundamental analysis of the top six basic materials offering excellent dividends (Data from finviz/morningstar, and is current as of September 30 close. You can download O-Metrix calculator, here.):

Emerson Electric Co. (EMR): Emerson Electric is a diversified global technology company. It was trading at a P/E ratio of 15.1, and a forward P/E ratio of 11.8, as of the September 30 close. Analysts expect the company to have a 9.0% annualized EPS growth in the next five years. With a profit margin of 10.5%, shareholders enjoyed a 3.34% dividend last year.

Earnings increased 15.10% this year, and 17.57% this quarter. O-Metrix score is 4.58. The stock is currently trading 32.69% lower than its 52-week high. Target price implies a 34.3% upside potential, while it returned -23.1% in a year. ROI and ROE are 15.49% and 24.97%, respectively. Operating margin is 15.4%, and gross margin is 39.5%. Average analyst recommendation for Emerson Electric is 2.30 (1=Buy, 5=Sell). I like Emerson Electric's prospects despite the crucial competitive atmosphere. The company is a sweet stock to invest in. Moreover, it has a four-star rating from Morningstar. Recent dividend payments are as follows:

08/10/11

$0.345

05/11/11

$0.345

02/09/11

$0.345

11/09/10

$0.345

Eaton Corp (ETN): Eaton Corp is a diversified power management company. It was trading at a P/E ratio of 10.8, and a forward P/E ratio of 8.1, as of the Friday close. Analysts expect the company to have a 9.7% annualized EPS growth in the next five years. With a profit margin of 7.7%, shareholders enjoyed a 3.83% dividend last year.

The company had an EPS growth of 139.92% this year, and 46.39% this quarter. O-Metrix score is 7.15, while the stock is trading 26.27% lower than its 52-week high. Sales rose by 21.08% this quarter, and Eaton returned -13.0% in a year. Target price is $56.36, indicating a 59.0% increase potential. Institutions own 83.53% of the shares. Debt-to equity ratio is 0.5, better than the industry average of 0.8. Moreover, it has a four-star rating from Morningstar. I believe the stock is underpriced, and dividend yield is satisfactory. Here is the recent dividend history of Eaton:

08/04/11 $0.34
05/05/11 $0.34
03/01/11 $ 2:1
02/03/11 $0.34

General Dynamics (GD): General Dynamics offers a portfolio of products and services in business aviation. It shows a P/E ratio of 8.3, and a forward P/E ratio of 7.6, as of September 30’s close. Analysts estimate a 10.5% annual EPS growth for the next five years. It paid a 3.30% dividend, while the profit margin was 8.2% in 2010.

The stock returned -7.3% in the last twelve months, and O-Metrix score is 8.67. Earnings increased by 9.94% this year, and institutions own 78.77% of the shares. While ROE is 19.80%, ROI is 15.68%. Target price is $80.42, indicating an about 42.3% increase potential. Debt-to assets ratio is 0.2, far better than the industry average of 2.1. Although the stock has had harsh times, I believe it will beat the market in the future, as it is a dividend pick for the next five years. Recent dividend payments per share are:

10/05/11

$0.47

06/29/11

$0.47

04/06/11

$0.47

01/12/11

$0.42

General Electric Co (GE): General Electric is a diversified technology and financial services company. As of September 30, It has a P/E ratio of 12.0, and a forward P/E ratio of 9.9. Estimated annual EPS growth for the next five years is 11.7%, while it offers a dividend yield of 3.94%. Profit margin was 8.9% last year, slightly above the industry average of 8.8%.

The stock is trading 28.57% lower than its 52-week high. Target price is $21.04, which indicates a 38.4% upside movement potential. Gross margin is 52.9%, and O-Metrix score is 7.14. General Electric returned -5.5% in a year. Average analyst recommendation for General Electric is 1.90 (1=Buy, 5=Sell). Debts have been decreasing for the last three years. Although General Electric is not what it used to be, it still has the potential to beat the market. General Electric offers substantial margin of safety. Moreover, it has a five-star rating from Morningstar. Recent dividend history of the stock per share is as follows:

09/15/11

$0.15

06/16/11

$0.15

02/24/11

$0.14

12/22/10

$0.14

Honeywell International Inc. (HON): The New Jersey-based Honeywell a diversified technology and manufacturing company. As of September 30, Honeywell shows a trailing P/E ratio of 14.2, and a forward P/E ratio of 10.1. Analysts estimate a 15.3% annualized EPS growth in the next five years. With a profit margin of 7.0%, shareholders enjoyed a 3.03% dividend last year.

Honeywell International had a 26.41% EPS growth this year, and 41.10% this quarter. It returned 0.1% in a year, whereas its O-Metrix score is 7.54. ROI and ROE are 13.68% and 23.55%, respectively. Target price indicates an about 33.8% increase potential, while the stock is currently trading 28.56% lower than its 52-week high. Gross margin and operating margin are 24.4% and 10.4%, respectively. Debts are decreasing for the last three years. Honeywell just double-bottomed, so consider adding this stock to your portfolio. Recent dividend history of the stock per share is as follows:

08/17/11

$0.332

05/18/11

$0.332

02/16/11

$0.332

11/17/10

$0.302

Illinois Tool Works Inc (ITW): Illinois Tool Works Inc is a multinational company that operates in 57 countries. ITW was trading at a P/E ratio of 11.4, and a forward P/E ratio of 10.1, as of the September 30 close. Analysts expect the company to have an 11.9% annualized EPS growth in the next five years. With a profit margin of 11.1%, it offers a 3.46% dividend.

The stock is currently trading 29.95% lower than its 52-week high. Target price implies a 34.5% upside potential, while it returned -12.2% in a year. ROE and ROI are 19.90% and 14.51%, respectively. O-Metrix score of Illinois is 7.14, whereas institutions own 79.95% of the shares.
Debt-to equity ratio is 0.3, far better than the industry average of 0.8. The debt-to assets ratio is decreasing since 2008. Moreover, it has a four-star rating from Morningstar. Here is the recent dividend history of Illinois Tool:

09/28/11 $0.36
06/28/11 $0.34
03/29/11 $0.34
12/29/10 $0.34



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 6 Industrial Giants Paying Substantial Dividends