Better Industrial Stock: Honeywell vs. Emerson Electric

It's been a turbulent start to the year for stock investors, and late last month the Dow Jones Industrial Average finally entered correction territory. In these market conditions, companies that own physical assets and essential infrastructure stand out for their pricing power, steady cash flow, and reliable dividend payments.

Industrial stocks Honeywell (NASDAQ: HON) and Emerson Electric (NYSE: EMR) are two businesses that provide exposure to long-term infrastructure and industrial automation, and both are solid dividend stocks to boot. If you're looking to put some cash to work today, here's which stock is a better buy today.

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Honeywell and Emerson are undergoing big changes to focus on automation

Honeywell is a massive conglomerate that is transforming into a software-integrated industrial giant. Its businesses span aerospace, building automation, energy, and sustainable solutions. The company has taken steps to focus its business on what it identifies as high-growth megatrends, including industrial automation and the energy transition. It spun off its advanced materials business late last year and plans to spin off its aerospace division later this year.

Emerson is another industrial conglomerate taking a similar approach to Honeywell, divesting from some of its legacy businesses to focus on industrial automation. In recent years, the company has sold its household and commercial infrastructure businesses to focus on industrial automation through its software and systems and intelligent devices groups. Its primary focus is on helping factories, refiners, and power plants to automate operations with its technology.

Both stocks are appealing choices for dividend investors. For example, Emerson Electric has a long history of raising its dividend payment to investors for 69 consecutive years, one of the longest streaks among Dividend Kings, or companies that have raised their dividends annually for 50-plus years, today. Meanwhile, Honeywell has a solid dividend yielding 2% and increased its payout for 15 consecutive years.

Here's which stock to buy today based on your investing goals

Both companies are undergoing changes that management thinks will make the businesses more focused on high-growth opportunities. In early March, Honeywell filed a Form 10 to spin off Honeywell Aerospace in the third quarter, a move that analysts at Wolfe Research believe could unlock "sum-of-the-parts" value for Honeywell investors. The move will give Honeywell a pure-play industrial automation company, while Honeywell Aerospace will provide investors with an independent aerospace leader.

Emerson is further along in its transformation than Honeywell and may be a more appealing stock for conservative or income investors. The transformed company is a pure play on the fourth industrial revolution and automation and an appealing choice for investors looking to play the integration of physical assets with artificial intelligence (AI) and software.

The two companies share similar valuations on a forward earnings basis, so which one you go with depends on your outlook and personal investing goals. Emerson's transformation is largely complete, and the company has a long history of dividend increases, which appeals to investors seeking reliable income.

Honeywell, on the other hand, is still undergoing its transformation process and plans to spin off Honeywell Aerospace in the third quarter this year. If you believe the spinoff will unlock hidden value and are looking to play this upside, Honeywell is the more appealing stock to buy today.

Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Emerson Electric and Honeywell International. The Motley Fool has a disclosure policy.