Original Source: Keegen Keene, Texture Artist at GameTextures.com
Make sure to enable DBuffer Decals in the Engine preferences.
The beauty of using deferred decals and trim sheets is that it allows you to utilize fewer texture assets and lower detail models. You should import your desired decals into your modeling program so that you can use the cut-up version to place the specific elements of the decals around your model, offsetting them from the underlying geometry to avoid z-fighting (0.15 cm or units is typically enough, but feel free to play with this). When you are done modeling, divide your model up into it's material elements by assigning unique materials to each material group (e.g., Material 1 = White Plastic, Material 2 = Black rubber, etc). This will make applying your decal materials and tiling materials easier in Unreal Engine.
Set the material attributes as follows on the left below. Setting the Decal Blend Mode to Translucent will pass all aspects from the underlying material onto the decal material (e.g., roughness, metal, etc). For a "Normals Only" decal, set the Decal Blend Mode to DBuffer Translucent.Color.Normal as shown on the right.
You can see what the difference between these are below.
Notice the use of full translucent on the upper decals (in black) vs. the normals only decal on bottom.
To increase the quality of your decals look, utilize Parallax Occlusion Mapping (POM). Refer also to Parallax Occlusion Mapping (POM) and Landscape Blending with Static Meshes to learn more about POM. Note that the Base Color (Albedo) Texture Sample node has an opacity (alpha) mask in it's Alpha channel that outputs to the Material's Opacity node. This masks the decal correctly so that it only draws those areas that it should draw. Set the height map Sample Type to "Grayscale" and make sure the gray point (neutral) is set to 0.5 (or 127) to ensure the height map correctly insets/extrudes.
Note that the Base Color (Albedo) has an opacity mask in the alpha channel.
Height ratio adjusts the strength of the height map's influence. Small values like 0.02 are generally acceptable. The red 4Vector node is important as the POM node will not read the height map input without it. Reference Plane (S) refers to the neutral gray point on your height map (again, 0.5).
