While Eaton (ETN) won’t show up on the list of dividend aristocrats, the company has one of the most impressive dividend streaks in the world.

Eaton has paid dividends every year for more than 90 years (dating back to 1923) and compounded its payout by more than 10% annually over the past decade.

With a dividend yield near 3.4% and a forward P/E ratio below the broader market’s, today is a reasonable time to take a closer look at Eaton to see if it could be one of the better high dividend stocks to consider.

Business Overview

Eaton is a large industrial conglomerate with approximately $20 billion in annual sales and an operating history dating back to 1911.

The company provides a wide range of energy-efficient products and systems that help customers manage power across electrical, hydraulic, and mechanical applications.

Eaton also has a substantial aftermarket business (approximately 20% of total sales) that provides some stability to its business.

By geography, the U.S. is Eaton’s largest market accounting for 55% of sales, followed by Europe (21%), Asia-Pacific (11%), Latin America (7%) and Canada (5%).

Segments

Electrical Products & Systems (64% of sales; 66% of profit): sells a range of power-related components, circuits, lighting products, and equipment used wherever there is demand for electrical power (e.g. buildings, data centers, hospitals, utilities, factories).

Vehicle (16% of sales; 16% of profit): supplies drivetrain and powertrain systems and components used in cars, trucks, and agricultural vehicles. Key products include transmissions, clutches, engine valves, and superchargers.

Aerospace (9% of sales; 11% of profit): sells fuel, hydraulics, and pneumatic systems used in commercial and military aircraft. Products include pumps, motors, controls, sensing products, hose fittings, and more.

Hydraulics (11% of sales; 7% of profit): sells components and systems such as pumps, motors, valves, and controls that are used in industrial and mobile equipment. Key end markets are oil and gas, agriculture, construction, and mining.

Business Analysis

Many of Eaton’s competitive advantages are derived from its long operating history since the company has been in power management for more than 100 years.

As a result, Eaton has built up a strong reputation for quality, massive distribution channels, an extensive portfolio of well-known products, and long-lasting customer relationships.

Smaller and newer players have a hard time competing with Eaton for many of these reasons. They lack Eaton’s economies of scale ($20 billion in annual revenue), which allows the company to maintain a lower manufacturing cost structure.

Eaton can also afford to pump about $600 million in research and development activities each year to maintain the broadest, most advanced portfolio of technologies and established brands. Most of Eaton’s R&D investments are now largely focused on digitization initiatives.

This is important because many of its products solve the most demanding power needs. The company supplies mission critical products that need to be extremely reliable.

In aerospace, for example, Eaton benefits from long product qualification cycles and meaningful aftermarket demand. Once Eaton’s components and systems have proven to be reliable and are designed in, the company enjoys a long stream of high-margin aftermarket revenue.

The company’s aftermarket business makes life difficult for new entrants as well. Eaton generates around $4 billion in annual sales from aftermarket products and services, helping it maintain stickier customer relationships and retain its reputation for quality.

Aftermarket revenue also tends to carry high margins and allows Eaton to price some of its upfront equipment sales at levels that make it difficult for smaller competitors to earn a profit (a lot of the money is made in equipment support and services).

Smaller rivals lack the network needed to service multinational customers, who demand timely service and maximum uptime.

Eaton has over 13,000 authorized channel partners and 10,000 commercial resources it can use to efficiently reach customers all over the world. Replicating this network would likely take decades of time and cost tens of millions of dollars.