I have wanted to complete a dividend stock analysis of Emerson for some time. Why? It has been one of my poor performing investments.
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Emerson recently restructured their operations to focus on two core business platforms:
- Industrial automation solutions to help businesses and countries operate more efficiently
- Products and solutions for the commercial and residential real estate markets
EMERSON DIVIDEND YIELD
Emerson pays an annual forward dividend of $1.96 per share. This is a 3.3% dividend yield at the recent price of $60 per share.
Emerson’s consecutive annual dividend growth streak is an amazing 61 years. One of the longest streaks on record qualifies it as a Dividend King. Dividend Kings have increased their dividend annually for at least 50 years.
COMPOUND ANNUAL DIVIDEND GROWTH RATE
|1 Year||3 Years||5 Years||7 Years|
Dividend growth has been disappointing in recent years. For 2019, the company increased its dividend another 1% recently. This small increase added to my disappointment.
As I said at the beginning, Emerson’s one of my weak performers overall and from a dividend growth stock perspective specifically.
Let’s dig a little deeper to see what might be going on.
Revenue has started to grow again. As an industrial company, Emerson was negatively impacted by an unprecedentedly long industrial downturn that the global economy started to emerge from in 2017 – 2018.
Emerson’s revenues are also heavily exposed to the oil industry. Their business activity from that sector collapsed in 2015 along with the price of oil.
During this time period, the company also sold off several business units and their associated revenue and profit base to re-position for growth in core strategic areas.
EMERSON DIVIDEND, EARNINGS AND PAYOUT RATIO
In the last two fiscal years, Emerson has emerged as a leaner higher margin business. The dividend payout ratio has decreased to a more comfortable level at about 50% of either earnings or free cash flow.
However, the cost of recent bolt on acquisitions has limited the amount of capital available for dividend increases.
A company’s credit rating reflects their ability to meet financial commitments as they come due. It is a reflection of the strength of their balance sheet and financial condition.
Emerson currently carries a reasonable valuation at slightly more than 15 times projected fiscal year 2019 earnings.
I first established my position in Emerson back in 2009 and subsequently added to it over the years. It still remains a small position in my dividend stock portfolio.
I have been disappointed in the lack of dividend growth, but I think the company’s prospects look better now and I expect dividend growth to resume in the 6-8% range in coming years.
In fact, barring a major global economic slow down, Emerson looks like a reasonable buy at current prices for those willing to be patient.
DIVIDEND STOCK INVESTING THROUGH EMPEROR INVESTMENTS
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WHAT ARE YOUR COMMENTS?
Do you own Emerson? What do you think of their prospects for the future? And are you worried about the global economy?
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