3 Dividend Stocks Every Automation Engineer Should Own

“Invest in industries and sectors that you understand.” That often-repeated recommendation may sound cliche, but it remains true. As an automation engineer, you have a competitive advantage in Electrical Equipment, Industrial Automation Controls, and Specialty Industrial Machinery industries as you can identify trends and understand industry-specific concepts. This advantage can make you a lot of money if you pay keen attention to the market and purchase industry-related stocks.

The average Joe may not understand the link between advancements in open source communications, fiber optics, 5G technology, and ethernet, among other developments, and the increased usage of PLC systems in production operations. But as a fellow automation engineer, leveraging your knowledge will immediately stimulate the realization that these technologies enable PLC systems to enjoy the benefits of DCS systems, usually at a much lower cost.

Lower costs and exponentially increasing demand for automation on production lines across numerous end markets means companies that produce the components of PLC, HMI, SCADA, and DCS systems will see a demand boom for their products and services.

The companies operating in the Electrical Equipment, Industrial Automation Controls, and Specialty Industrial Machinery industries space best positioned to take advantage will produce the most returns for shareholders. Dividends form a critical part of total shareholder returns (TSR). They create passive income, protect you from inflation, and you can reinvest them to enable the compounding effect, a key to wealth creation. Here are three dividend stocks every automation engineer should own.

Industry Related Dividend Paying Stocks for Automation Engineers

ABB Ltd (NYSE:ABB), Schneider Electric S.E. (OTC:SBGSY), and Siemens AG (OTC:SIEGY) are three dividend stocks every automation engineer who has ever programmed a PLC should own. These shares all have strong fundamentals that make them reliable dividend stock choices. They are all strong industry players and highly capitalized. The three companies also have medium to long-term earnings growth potential and have low debt-to-equity ratios.

Let’s take a detailed look at each stock at the November 19th close of trade and review why automation engineers would benefit from holding these dividend stocks.

Related Read:

3 undervalued Dividend Kings for Steady Dividend Income

ABB Ltd ( NYSE:ABB) – Budget Friendly Stock Growing Through Acquisitions & Prudent Management

• Market Capitalization: $73.28 billion.
• Price: 35.74
• Yield: 2.39%
• Dividend: $0.85
• Forward P/E: 21.6

ABB has consistently outperformed the Electrical and Machinery industry, and its price is trending upwards. Now is the best time to buy ABB since it is currently one of the most affordable Electrical Equipment & Parts stocks. The industry is benefiting from strong current and future demand for its products.

ABB’s 2.39% yield and $0.85 annual dividend are the most recent editions of 15 consecutive years of dividend payments. The dividend trend speaks to the company’s solid, underlying fundamentals, and those numbers are improving year-over-year (YOY).

ABB increased its 2020 invested capital to $22.806 billion, indicating how serious the company is about growth and providing shareholder value. The company acquired Codian Robotics B.V. in October 2020, a deal allowing technological expertise expansion.

The acquisition increased ABB’s Robotics & Discrete Automation segment product portfolio and allowed more partnerships with renowned companies.

Despite the acquisition, ABB slashed its debt by nearly $3 billion and reported $999 million in free cash flow – a figure set to almost triple to $3 billion for 2021.

In the short term, the stock has outperformed consensus earnings per share (eps) targets for the last five quarters, and many analysts believe ABB will outperform the forward 2022 average eps goal of 1.52, which is $0.11 higher than the 2021 goal.

Francehill.com used 22 years of historical data to predict that the stock is 55% likely to appreciate by 13.5% up to 41.0 over the next 52 weeks; the analysts rate ABB as undervalued as implied from the forward price/earnings ratio score of 21.6. Undervalued stocks are more likely to appreciate reducing shareholder risk of a price fall.

While the Wall Street Journal  (WSJ) reports that 18 of 30 analysts currently rate ABB as a hold, ten analysts rate the stock favorably with only two unfavorable ratings. ABB is a strong buy for automation engineers seeking dividends. The company continues to increase earnings, improve TSR, and sustain its dividend payments.

Fun Fact- While I was in uni, I did some tutorial videos on ABB’s Robot studio- you can check it out below

Schneider Electric S.E. (OTC:SBGSY) – Organically Growing Dividend Stock

• Market Capitalization: $103.39 billion
• Price: 36.39
• Yield: 1.73%
• Dividend: $0.36
• Forward P/E: 24.39

Schneider Electric is number 2 on the list of dividend stocks that every automation engineer should own. The company currently costs only $0.65 more than ABB, so budget-conscious automation engineers should consider it. Schneider Electric has paid a dividend for 12 years, and even though it’s $0.22 smaller than ABB’s dividend, the company has paid out three extra or special dividends since 2014 in addition to regular dividend payments.

“Incredible” best describes the momentum behind the meteoric appreciation of Schneider Electric’s stock price. Franchill.com has tracked Schneider Electric for the past 12 years; its model predicts the stock could double its pre-pandemic peak close price of 21.82 during 2022.

Schneider Electric hit its pre-pandemic peak approximately one month before COVID-19 caused global markets to bottom out in March 2020. But, by close of trade, May 31, 2020, the stock recovered beyond its previous pre-pandemic highs.

No acquisitions or mergers have contributed to Schneider Electric’s growth; it is purely organic or from sales increases. Chinese stockpiling, supply-side logistic challenges, and strong consumer demand for electronics resulted in worldwide shortages. The scarcity of production automation components like semiconductor chips and even the cheapest parts have caused inflationary effects on Schneider Electric product prices. Higher prices mean more revenue, and in April, the company raised its 2021 outlook to a 14%- 20% earnings increase after reviewing its 1st quarter results.

Despite the newfound earnings increases, Schneider Electric proceeded with disposal plans selling its Northern European cable support subsidiary for approximately $790 million to the Storskogen Group.

Schneider Electric’s WSJ overweight rating arose from 12 of 21 analysts providing favorable ratings. Ten of the 12 analysts with an optimistic outlook rated the stock a buy. With increased earnings, the company can afford to offer even more dividends and extras. It can also position itself to increase future revenues through controlling more market share and offering even more value to shareholders.

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Siemens AG (OTC:SIEGY) – Diversified Revenue Streams

• Market Capitalization: $149.53 billion
• Price: 87.32
• Yield: 2.41%
• Dividend: $2.11
• Forward P/E: 18.69

Despite being more than twice as expensive as the other companies listed, Siemens AG is the most undervalued with an 18.69 p/e ratio. The company possesses one of the industries’ largest market capitalizations and also offers a significantly higher dividend. Siemens AG has paid dividends for 19 consecutive years, and all the indicators tell us the company can sustain its attractive dividend into the foreseeable future.

Although Siemens AG’s core business remains digitally transforming the manufacturing, infrastructure, and transportation industries, diversification is at the core of the company’s history and current business model. Broadening exposure to different industries makes earnings and cash flow more resilient through boom and bust cycles. Accordingly, Siemens AG’s corporate structure has created three independently run companies operating in different industries. They are Siemens AG, Siemens Energy, and Siemens Healthineers

Siemens AG holds a 35.1% stake in Siemens Energy and a 75% stake in Siemens Healthineers.

Below are the company’s earnings before interest, tax, depreciation, and amortization (EBITDA) in euros for the previous two years.

Siemens Segment Earnings Before Interest, Tax, Depreciation, and Amortization (Euros)	2020	2019
Digital Industries	2,786 billion euros	3,132 billion euros
Smart Infrastructure	1,594 billion euros	1,670 billion euros
Mobility	1,039 billion euros	1,083 billion euros
Siemens Healthineers	2,807 billion euros	2,931 billion euros
Industrial Businesses	8,226 billion euros	8,816 billion euros

DATA SOURCE: SIEMENS PRESENTATIONS. (Courtesy of fool.com)

Siemens AG’s revenue estimates stand at €EUR 75 billion, with that figure set to increase by €EUR 5.58 billion the following year. The free cash flow projections estimate an approximately €EUR 1. 280 billion increase over 2020 as its multiple income streams rebound from the pandemic impacts.

The company is on a solid growth path. Siemens AG is on track to continue to increase revenues and pay significant dividends for years to come. It’s no surprise Siemens AG has retained its overweight ranking among WSJ analysts for the past three months. 16 of 24 analysts rate the stock a buy.

The Bottom Line

As an engineer, the core of your training is problem-solving. Figuring out how to establish financial independence and retire comfortably is one of the biggest problems we all have to solve. Investing in dividend-paying companies involved in the automation industry helps you earn or compound passive income. Dividend stocks also help you stay ahead of inflation and help get you closer to your goal.

Every automation engineer should know about ABB, Schneider Electric, and Siemens AG. They have a proven dividend paying record, and the underlying number shows the potential to increase earnings for the foreseeable future. Affordable ABB is growing its revenues through acquisitions and reinvesting in itself.

Schneider Electric also offers good value. Its price is climbing like a growth stock, but the share price movement is organic and linked to increased sales based on high product demand that will continue to grow in the long term.

Undervalued Siemens AG is a bargain. Its diversified income streams will return significant value to shareholders, including a premium dividend rate.

Most financial experts either rank these stocks as overweight or buy because the demand for automation components is rising. These three companies are best positioned to continue making the right moves to increase revenues and sustain TSR, including dividends. 

Please add a comment on any other dividend stocks that every automation engineer should own.

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