These under-the-radar industrial stocks have doubled investors' returns in just five years

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howden-joinery

Exciting growth stocks and FTSE 100 giants may garner much more attention than manufacturers producing run of the mill items, but that's just fine for investors willing to dig around a bit to find the market's hidden gems. Kitchen supplier Howden Joinery (LSE: HWDN) certainly counts itself among this group as share prices have risen over 250% in the past five years alone.

The biggest factor in Howden's success has undoubtedly been the broader uptick in new home construction that has helped boost revenue by 42% since 2011. But is Howden only riding the rising tide that's lifting all boats or does it have unique characteristics that make it a great long-term investment?

The company certainly has a major competitive advantage in its market-leading position in the kitchen supply business. With 619 depots in the UK at year-end and nearly 400,000 builder customers, Howden's scale and vertically integrated business model have allowed operating margins to rise from an already impressive 13.5% in 2011 to 18.1% in 2015.

Solidly profitable operations and a fiscally sustainable expansion policy mean that Howden's balance sheet is incredibly strong. The company had net cash of £182m in June and hasn't only substantially increased dividends but also embarked on a £125m share buyback programme over the past two years.

These are all great qualities, but would I choose Howden as a long-term holding over the equally cyclical housebuilders themselves? Perhaps not. While Howden has impressive margins and a fantastic balance sheet, so do most builders. And Howden isn't particularly cheap with a P/E of 13.79 while major housebuilders trade at around 9-10 times trailing earnings.

Playing safe?

Since going public in late 2013 shares of window and door manufacturer Safestyle UK (LSE: SFE) have jumped 100% on the back of steadily increasing sales and profits. Safestyle may be a more familiar name to investors due to major marketing campaigns aimed at increasing brand awareness, particularly in the South and South east.

This push seems to be paying dividends with revenue over the past six months up 12.8% year-on-year as the company not only shipped 5.7% more product but was also able to increase prices a full 6.9%.

Both of these metrics will be important to watch in the coming quarters as Safestyle moves to increase market share from its current 10%. If the company can continue to gain market share without resorting to margin-destroying discounting or higher marketing spend, then profits could rise substantially.

Dividends have already been growing nicely and over the past six months were increased 10.3% year-on-year, leading to a whopping 5.12% yielding dividend. The even better news is that dividends are quite safe with earnings covering payouts 1.8 times over last year and net cash increasing to £23.6m as of interim reporting.

While Safestyle is growing nicely, investors shouldn't forget that selling replacement windows and doors is still reliant on a healthy economy and buoyant housing market. We've yet to see how the company will perform during a market downturn but with fairly high growth potential and very attractive income potential I'll be following Safestyle closely.

Safestyle may have nearly doubled dividend payouts since going public but that still pales in comparison to the over 400% increase in shareholder returns from the Motley Fool's Top Income Share.

And this under-the-radar income investor favourite still has plenty of room to juice shareholder returns as earnings cover dividends three times over.

To discover why Motley Fool analysts are so bullish on this company, simply follow this link for your free, no obligation copy of the report.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.