Industrial stocks have been struggling to gain traction in 2023, but news from PPG Industries (NYSE: PPG) and CSX (NYSE: CSX) has these stocks melting-up. The combination of underlying business strength and internal efficiencies resulted in better-than-expected earnings reports that point to company profits and investors' capital returns. While neither of these stocks is “high yield,” they come with reliable yields and an expectation for growth. On the one hand, we have a Dividend King with 50 years of annual increases to back that up and, on the other, a near-Dividend Aristocrat with plenty of fuel to reach that goal and continue increasing for many years.

PPG Industries Mixed Quarter A Robust Performance 

PPG Industries reported a mixed quarter, but only concerning the analysts' estimates. The company reported a record $4.8 billion in revenue, up 1.6% compared to last year. It is less than the analysts were expecting but only missed by $0.01 billion and is offset by “accelerating margin expansion.” Revenue was driven by gains in both operating segments underpinned by pricing actions. Pricing actions helped to widen the gross and operating margin, the operating margin by 380 basis points and increasing YOY cash flow by about $400 million. On the bottom line, the $1.82 adjusted EPS beat the Marketbeat.com consensus by $0.27 or 1750 basis points better than expected, mitigating the top-line “weakness.” 

The quarterly strength also led to an increase in guidance. The company raised its outlook for earnings to a range with the mid-point well above the analysts' consensus. This should lead to analysts' upgrades and price target increases, and 1 has already shown up on Marketbeat’s tracking pages. That is a price target increase to $133 from Credit Suisse, below the consensus target. The takeaway is that sentiment is firm and should support the price action as it moves higher. 

“Our strong earnings growth was across most business units and was aided by higher incremental margins that were driven by higher selling prices, improving manufacturing efficiencies and overall cost discipline. These factors also resulted in record first quarter operating earnings in our Europe, Middle East and Africa (EMEA) region.,” said CEO Tim Knavish. 

The dividend yields about 1.75% and is safer than most Dividend King payouts which is saying something. The payout ratio is only 40% of the EPS outlook, which is too low. That’s coupled with a sound balance sheet and widening margins, so the 7% distribution CAGR can also be expected to continue. 

CSX Rides The Rails To Profits 

CSX is riding the rails of internal improvement and market conditions to grow the business and widen its margin. The company reported $3.71 billion in quarterly revenue for Q1, which is up 8.8% compared to last year and beat the consensus by 360 basis points. Increased merchandise and coal shipments, fuel surcharges, and pricing gains drove the strength. The pricing gains combined with volume strength to leverage the margin and grow the operating income by 14% compared to the 8.8% top-line growth. This led to $0.48 in adjusted earnings which is up 23% YOY and helping the company deliver capital returns to investors. 

The CSX dividend is about 1.45% in yield, with shares trading near $31.50, and the payout ratio is only 20% of the new earnings outlook. That leaves ample room on the books to continue raising the dividend at the current 8.5% CAGR and get it into Dividend Aristocrat territory. The chart shows solid support at the $28.50 level, and the market is moving up from that level now. Assuming the market follows through on this signal, it could return to an all-time high and possibly break out to new highs.