Emerson: The Power of Dividends
06/23/2016 8:00 am EST
Our latest featured stock was established in 1890; its best-known brands include RIGID tools, ClosetMaid organizers, and InSinkErator garbage disposals., notes David Fish, editor of Direct Investing.
St. Louis-based Emerson Electric (EMR) operates in process management, industrial automation, network power, climate technologies, and tools and storage.
Its primary products include motors, drives, actuators, valves, switches, test equipment, air conditioning compressors, electric tools and home storage solutions.
Its current total market capitalization of $34.2 billion classifies EMR as a large cap stock and it is considered a well-diversified business with wide economic moat and sustainable competitive advantage over rivals.
Consensus estimates call for the company to earn about $3.09 per share this year, and about $3.31 per share in 2017. Emerson has paid dividends to investors since 1947, and has increased its payments for 55 consecutive years.
During the last 5 years it has increased its dividends at an average rate of 6.8%. Its quarterly payment of $0.475 provides a yield of 3.52%.
Over the past decade, the company has returned value to shareholders, distributing more than 80% of its free cash flow through dividends and share buybacks.
The stock exemplifies the power of dividend reinvestment. A hypothetical investment in Emerson has grown cumulatively (including dividends reinvested) 3,923.52% during the last forty years.
The same investment has grown only 1,603.49% in the same period of time, excluding dividends.
The stock exhibits a healthy dividend payout ratio of 65%, which means the company is paying out 65% of all its net income in dividends.
Its p/e ratio of 18.3 is 26.2% below its industry average and, according to Morningstar, the stock is trading 13.6% below its fair value estimate, making it attractive for long-term investors.
Technically, EMR also looks attractive, trading 10.6% below its 52 weeks high, while it is forming a price consolidation pattern between $42 and $57.
EMR’s dividend re-investment plan charges no fees for cash investing, dividend reinvestment, safekeeping or termination of the plan.
By David Fish, Editor of Direct Investing