Want Reliable Dividend Income? These 2 Industrial Stocks Deliver

At a time when the S&P 500 carries a dividend yield of just under 1.1%, nearly everything looks good by comparison, including the yield of almost 1.2% on the S&P Industrial Select Sector Index, which is home to the S&P 500's industrial members.

Admittedly, with 10-year Treasury yields hovering around 5%, some income investors may say there's not much to see in the industrial sector, but that's not the right approach. Actually, the sector's scant 1.2% yielddisguises its reputation as a legitimate destination for dependable dividend growth.

These two industrial stocks are dividend growth stars. Image source: Getty Images.

Industrial stocks account for 21.6%of the S&P 500 Dividend Aristocrats® Index (the term Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC), or those members of the S&P 500 that have boosted payouts for at least 25 consecutive years. Only consumer staples account for a larger percentage of that gauge. Likewise, several industrial names are Dividend Kings, or firms with payout-increase streaks of at least 50 years.

The point is this sector isn't the highest-yielding group out there, but it's prime territory for investors seeking reliable payout growth. Illinois Tool Works (NYSE: ITW) and Waste Management (NYSE: WM) confirm as much.

Dividend royalty in the heartland

Industrial conglomerate Illinois Tool Works yields 2.4%, so it's not a quintessential high-dividend stock, but with a streak of payout increases spanning 57 years, it is a Dividend King. Importantly, the dividend's five-year compound annual growth rate (CAGR) of 7.1% implies this industrial stock doesn't just deliver consistent income. It's an inflation fighter, too.

Another attractive trait of this stock is dividend safety. On a scale of "kind of safe," "safe," and "very safe," Illinois Tool Works is, in the eyes of some experts, in the "very safe" camp. That safety is further enhanced by operational excellence. In the second quarter, the company's operating margins jumped 40 basis points, with the year-to-date gain standing at 50 basis points through the first half.

That's impressive, given that Illinois Tool Works faced hurdles stemming from material inflation and employee expenses. Investors shouldn't overlook the importance of operating margins, as these metrics show how much revenue a company retains as profit after accounting for operating and production expenses.

Think of operating margins as the opposite of golf. The higher the number, the better. Robust margins are often hallmarks of some well-known, glamorous growth stocks, but Illinois Tool Works proves that even an industrial conglomerate can master the margin game.

Further solidifying this dividend's reliability and safety is a free cash flow yield of 3.6%. That doesn't just support current payout obligations, it paves the way for future growth AND big-time share repurchases.

It'd be a waste to ignore this dividend stock

There are higher-yielding, larger industrial companies by market cap than Waste Management, but that doesn't diminish the trash hauler's dividend growth potential. The 14.5% payout hike unveiled last December marked the 23rd consecutive year in which the company boosted its dividend. So it's just a matter of time before this stock becomes a Dividend Aristocrat®.

So while waste hauling is far from a glamorous business, there's plenty of glamor associated with Waste Management's dividend growth trajectory. Uninitiated investors may also be overlooking the company's wide moat. Sure, owning landfills is a prosaic business, but establishing a dominant perch in that space isn't easy. Waste Management accomplished that objective.

Waste Management is also a small but growing play on natural gas demand, driven by its landfill gas-to-renewable natural gas business. That enterprise, which is considered a renewable energy outfit, could be a significant earnings contributor as soon as next year.

Improvements in free cash flow conversion and a dedicated share repurchase program, which reduce the number of shares outstanding, support Waste Management's status as a reliable industrial dividend grower.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool recommends Illinois Tool Works and WM. The Motley Fool has a disclosure policy.