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The ability for a company to increase its dividend largely depends on the percentage of earnings the company is currently paying out. The industrial companies mentioned in this article have low payout ratios. For this reason, these companies have the potential to raise their dividends significantly.

Cummins Inc (CMI)

  • 1.33% current yield
  • 17% payout ratio
  • Engine manufacturing

In addition to the low payout ratio, CMI has net cash of $700 million. This is very unusual for a large industrial company. Not having to worry about refinancing debt puts CMI in a strong position to raise the dividend.
Deere & Co (DE)

  • 1.86% current yield
  • 23% payout ratio
  • Agriculture machinery

The bull market in agriculture is showing no signs of slowing down. The continued strength in food prices should lead to increased spending by farmers. Much of this money will be spent on DE machinery. If business remains strong, DE can easily afford to increase the dividend. There has been a healthy rotation from some agriculture commodities into others, but on the whole agriculture prices remain strong. While Corn and Wheat have cooled down, Cattle prices have risen to record levels. For more on playing the bull market in beef click here.
Caterpillar (CAT)

  • 1.61% current yield
  • 24% payout ratio
  • Construction & mining equipment

The housing market looks to be bottoming in the U.S. and this could provide an unexpected catalyst for CAT. As business continues to improve, CAT will most likely reward investors with an increase in the dividend.
Posco (NYSE:PKX)

  • 2.40% current yield
  • 19% payout ratio
  • Steel producer

PKX is a largely a play on China. With the Chinese government's recent decision to lower reserve ratio requirements, it appears the Chinese economy will be stronger than many were expecting. PKX only pays out 19% of its earnings; the company can easily afford to raise the dividend as business improves.
Siemens AG (SI)

  • 3.9% current yield
  • 32% payout ratio
  • Diversified industrial

SI has major exposure to Europe. While Europe looks headed for a terrible recession, it appears the major blow up of the EU has been averted. As European funding markets continue to improve, SI will be less worried about cash on hand and more willing to increase the dividend.
United Technologies (UTX)

  • 2.3% current yield
  • 34% payout ratio
  • Diversified industrial

UTX is a diversified industrial and the strength of its business is largely dependent on the global economy. With the recent jobs numbers behind us, it looks as though the U.S. economy is much stronger than most expected. Europe and Asia are also doing better than expectations. UTX can afford to increase the dividend if the economy remains strong.
Dover (DOV)

  • 1.92% current yield
  • 25% payout ratio
  • Manufacturing

DOV is in good shape to increase the dividend because it has a low payout ratio and little debt. DOV has only $1 billion in net debt. This means DOV does not need to commit the majority of its earnings to paying off debt.
Parker- Hannifin Corp (PH)

  • 1.82% current yield
  • 21% payout ratio
  • Manufacturing

PH is in a similar position to DOV. PH's payout ratio is just 21% and the company has just over $1 billion in net debt.
Conclusion

These industrial companies have already shown a willingness to reward shareholders with dividend payments. However, these companies can easily afford to increase their dividends in the future.

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

Source: 9 Industrial Stocks With Room To Increase Dividends