Re-Shoring Dividends With Rockwell Automation

Summary North America is in a terrific spot to benefit from re-shoring supply chains and a general streamlining of production processes to reduce risks. Rockwell Automation is in a great spot to deliver the necessary support, allowing companies to reach their efficiency goals. The company is a dividend growth stock with a somewhat lofty valuation. I believe that ROK shares are a buy on weakness. IvelinRadkov Introduction I haven’t covered Rockwell Automation (NYSE: ROK ) since 2021. Now, there’s a great reason to dive back in. One of the key themes I started discussing more in-depth this year is the re-shoring of supply chains. I recently wrote an article on this topic, highlighting the risks and opportunities of post-pandemic supply chain reconfirmations. In this article, we’ll discuss a company that benefits from re-shoring as it addresses shortcomings like higher costs and challenges related to new technology trends like EV mobility. ROK is an outstanding dividend growth stock that offers companies innovative solutions for automation, AI, and everything related to optimizing production and service processes. It’s a company that comes with a high likelihood of peer outperformance, a decent yield, solid dividend growth, and a business model that has never been more appropriate. So, let’s dive into the details! Re-Shoring Opportunities & Challenges If you want all of my recent thoughts on re-shoring, feel free to read the article mentioned in the introduction. But no worries, I’m also covering the bigger picture in this article. After all, some context is needed before discussing the benefits that come with Rockwell Automation. Essentially, re-shoring is a light version of de-globalization. Globalization accelerated after the second world war as technologies improved. New alliances were made, and companies saw opportunities in producing and selling products overseas. China was one of the biggest beneficiaries as it became a global hub for cheap manufacturing and materials. However, globalization (supply chains) started to show some cracks in 2015/2016 when former President Trump highlighted the dependence on China and the need to fight back against unfair trade practices. This included trade tariffs and a tougher stance on companies looking to outsource production to overseas countries. Then, the pandemic happened. Lockdowns, exploding shipping costs, and closed factories added a ton of uncertainty to global supply chains. While shipping costs have normalized again, supply chains are not back to normal. The Daily Shot Supply chains were so stretched after the first wave of lockdowns (when the demand came back) that companies suffered greatly from supply chain issues and everything related to that. Or, as S&P Global put it: “U.S. companies have taken multiple measures to address supply chain issues, including chartering freighters, rerouting shipping to smaller ports along the coasts, and relying more on air freight,” said Lillian Lin, portfolio manager at PIMCO. Companies with more diversified supply chains, less concentrated in China, have done better than others. To make matters worse, Russia invaded Ukraine earlier this year, which added another layer of problems. Moreover, we didn’t even mention the increasing tensions caused by China pressuring Taiwan. Because of these issues, the Biden administration has passed two bills aimed to improve domestic semiconductor production. On top of that, companies in all sectors are starting to incorporate re-shoring strategies. For example, S&P Global highlighted comments from Martin Marietta Materials ( MLM ). The company said that re-shoring is expected to boost nonresidential construction investments in the US. Moreover: Reshoring and foreign direct investment contributed to nearly 262,000 jobs returning to the U.S. in 2021, up from nearly 179,000 a year earlier, according to data collected by Reshoring Initiative. A total of 1.3 million jobs have returned to the U.S. since 2010, with a further 3 million to 5 million jobs that could return if companies and governments embrace measures to support reshoring. S&P Global What’s interesting is that it’s not just industrial companies mentioning re-shoring. While these companies are the epicenter of re-shoring, we see a trickle-down effect. Real estate and information technologies are also increasingly focusing on these macro trends. S&P Global The importance of information technology cannot be underestimated. After all, re-shoring is extremely difficult. Remember, companies had a good reason to move production overseas. They were able to significantly reduce costs. Bringing back supply chains is a good idea. However, it does not work in all segments. It also needs significant tech support to give the US another edge as it won’t be able to compete on labor costs – and that’s not a bad thing. However, the […]

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