Emerson Stock Analysis (EMR) & Dividend Review

Emerson Electric: A Dividend King

Let’s work through an Emerson dividend stock analysis.  Why? Because Emerson’s dividend growth has been on the low side lately.

So, I would like to understand what is going on. Let’s see if the dividend is safe and positioned to grow in the near future.

emerson dividend king

To kick it off, a few highlights from this article…

Emerson Dividend Stock Review: Key Takeaways

1. Emerson is an industrial stock that pays dividends. And can be considered a possible holding in a long-term dividend growth stock portfolio.

2. The company has a history of increasing dividends every year and has earned the lofty status of Dividend King.

3. Emerson’s dividend growth rate has been very low in recent years. But its dividend appears to be quite safe.

4. The stock’s recent price increases have left it looking overvalued at the time of this update.

With those big picture points in mind, let’s get on with our checkup of Emerson and its dividend.  We will take a closer look at Emerson’s dividend safety, dividend growth potential, stock valuation, and much more.

As with all the stocks I review, Emerson is a stock pick in my Dividends Diversify model stock portfolio. Before you go, be sure to check out some of the other dividend-paying companies it holds. But now, on to our Emerson dividend stock review.

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

Emerson – Company Background

Emerson restructured its operations starting in 2015. Since then, the company has focused on 2 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 

Revenue breaks out between the 2 platforms as shown in the chart below.

Chart 1: Emerson Revenue By Business Platform

Emerson stock review: revenue by business unit

Business Strategy

The 2015 business restructuring I mentioned resulted in Emerson divesting businesses. And those businesses made up nearly one-third of 2014 revenues.

They moved from 5 business platforms down to the 2 they currently operate. Emerson’s current strategy around these 2 platforms is focused on:

  • Implementing cost savings programs
  • Optimizing their manufacturing footprint
  • Improving their financial position and capital structure
  • Returning cash to shareholders
  • Targeted mergers and acquisitions

First of all, these stated objectives are representative of good dividend stock companies in general.

Furthermore, it is possible Emerson will seek to split or restructure into 2 or more pieces in the coming years. To become even more focused on unlocking shareholder value. From the different business areas in which they operate.

Finally, Raytheon (RTX), another industrial stock that pays dividends. And also, a member of the Dividends Deluxe model portfolio. Like Emerson, went through a dramatic restructuring recently. It resulted in a merger with United Technologies.

industrial stocks that pay dividends
Industrial Automation: A big part of Emerson’s business

We can’t tell what the future will bring for Emerson. But we can check out the health of its dividend metrics and its stock. Because receiving regular dividends is a great way to improve your money management situation.

So, let’s get on with it…

Emerson Stock Symbol

First of all, Emerson stock trades on the New York Stock Exchange under the symbol EMR (NYSE: EMR).

What Is The Emerson Stock Dividend Payout Per Share?

Emerson stock pays an annual forward dividend of $2.02 per share.

The forward dividend per share is the most recent quarterly dividend paid. Multiplied by the 4 calendar quarters the company pays dividends each year.

Emerson Dividend Yield

This dividend payout results in a 2.4% dividend yield at the recent Emerson stock price.

The yield is a little lower than I prefer for my dividend stock investments. But a lower dividend yield is typically a good sign of dividend safety.

Especially for a company like Emerson. With a long history of paying shareholder’s dividends.

How Often Does Emerson Pay Dividends?

Emerson pays dividends every 3 months or 4 times per year.

They follow a typical quarterly dividend payment pattern. That many other dividend-paying companies use.

When Does Emerson Pay Dividends?

Emerson’s quarterly stock dividends fall in the months of March, June, September, and December. The dividend is usually paid on the 10th day of these months.

I say usually because sometimes the 10th falls on a weekend. When this is the case, Emerson’s dividend is paid either on the 9th day or the 11th day.

Emerson Ex-Dividend Date

Are you a potential new shareholder? Or someone looking to make an add-on investment to your current Emerson shares to increase your dividends?

Then you may want to receive the next Emerson dividend payout. To do so, you must complete your investment BEFORE the ex-dividend date.

Emerson’s ex-dividend date falls in the month PRIOR to when it pays dividends. Furthermore, it comes in the middle of those months. On or around the 15th day. The exact date changes slightly each quarter.

So, refer to Emerson’s website for the precise date. Or its most recent quarterly press release announcing the company’s dividend payment.

Emerson Dividend History

The company has a long and rich dividend history. Specifically, Emerson’s consecutive annual dividend growth streak is amazing.

Because the company started increasing its dividend annually in 1957. And have done so every year since then.

Emerson Has Achieved Dividend King Status

This is one of the longest annual dividend increase streaks on record. It qualifies Emerson as a Dividend King.  Dividend Kings have increased their dividend payments annually for at least 50 years in a row.

But, let’s see what the more recent dividend growth rate looks like next.

Emerson Dividend Growth Rate

The trend in the table below is clear to me. The company’s dividend growth has been low, slow, and disappointing in recent years.

Table 1: EMR Compound Annual Dividend Growth Rate

1 Year3 Years5 Years7 Years
2.0%1.4%1.2%2.9%

Couple the low dividend growth rate with a dividend yield of less than 3%. And Emerson is not a very exciting dividend growth stock. At least not in my opinion.

At such a low dividend yield, I would like to see dividend growth in the 5-7% range each year. Because strong dividend growth is essential no matter the amount of money you want to make from dividends.

Most Recent Emerson Dividend Increase

The dividend news for 2021 isn’t much better. The company announced just a 1% dividend increase for its new fiscal year.

Emerson Dividend Policy Statement

First of all, higher dividend growth appears to be limited by Emerson’s stated dividend policy. Furthermore, the company’s dividend policy is part of a broad capital allocation plan.

Their 5-year capital allocation plan suggests paying out approximately one-third of free cash flow. In the form of dividends.

They do so to reward shareholders with cash payments. That is why companies pay dividends.

Also, their plan calls for paying a similar percentage of cash for share repurchases. But, due to the uncertain short-term economic outlook, share repurchases have been curtailed. So, I’m happy the dividend takes priority over buying back shares.

But, I am not pleased with Emerson’s recent dividend growth. On the other hand, I appreciate it when a company communicates its objectives for its dividend. It helps me make a plan for my monthly dividend income.

Furthermore, by associating dividend growth to financial performance. Free cash flow in Emerson’s case. We just need better financial results to kick start more rapid dividend growth! Easier said than done, I suppose.

Let’s look at the financial reporting and business fundamentals next. To see what they tell us about the company’s current and future financial performance.

Emerson Stock Analysis: Revenue Trend

There is a lot going on in the revenue trend. Let’s cover a few major points related to the chart below.

Chart 2: 7-Year EMR Revenue Trend

EMR stock analysis: revenue trend

First of all, remember that Emerson’s 2015 business restructuring divested one-third of the company’s 2014 revenue base.

Furthermore, Emerson was negatively impacted by an unprecedentedly long industrial downturn dating back to the great recession. The global industrial economy finally started to recover in 2017.

In addition, Emerson’s revenues were also heavily exposed to the oil industry.  Their business activity from that sector collapsed in 2014-2015 along with the price of oil.

Revenue has finally stabilized and started to grow again. But the events of 2020 led to unprecedented economic uncertainty. Also, another collapse in oil prices. And with that a decrease in Emerson’s revenues versus the year prior.

Management expects 2021 to present another challenge. Given the environment, forecasted annual revenue growth for the new year is minimal.

Emerson Dividend Payout Ratio Based On Earnings

In the years since restructuring in 2015, Emerson emerged as a leaner higher-margin business. 

But earnings declined in 2020. As shown in the chart below.

Chart 3: Emerson Dividends & Earnings Per Share

EMR dividend payout ratio

With the 2020 earnings drop, the dividend payout ratio increased. It checks in at a little over 60% of earnings.

Furthermore, I would not expect Emerson’s management to let it get much higher. Most industrial dividend stocks, because of their economic sensitivity, operate with lower dividend payout ratios.

Let’s cross-check dividend payments against free cash flow. Since dividends are paid from cash, not accounting earnings. And Emerson management communicates its capital allocation plans based on cash flow performance.

Emerson Dividend Payout Ratio Based On Free Cash Flow

Emerson free cash flow and dividend payments

For 2020, the dividend consumed less than 50% of free cash flow. And it is expected to remain about the same during 2021. In years prior it consumed more than 50%.

So, we have had some improvement. As free cash flow has increased more rapidly than dividend payments.

Furthermore, the dividend as a percentage of free cash flow is the reason dividend growth has been slow. Why? Because management has a dividend policy as part of its cash capital allocation plan.

To refresh your memory, it is to pay about one-third of free cash flow in the form of dividends to shareholders. As a result, faster dividend growth is not consistent with their policy at this time.

The very small Emerson dividend increase for 2021 appears to be a token increase. One with the primary intent to keep their annual dividend increase streak alive. Because management certainly does not want to lose the company’s status as a Dividend King.

Okay. I now know enough about Emerson’s dividend metrics. To make a dividend growth forecast. Let’s cover that next.

Emerson Dividend Growth Forecast

I make a projection of future dividend growth for all my dividend-paying stocks. I do this for 2 reasons.

First of all, a dividend growth forecast helps me understand what my dividend income will be in the future. Furthermore, it aids in valuing a stock using a dividend discount model approach.

To make my forecast, I review and evaluate the following:

  • Historical dividend growth rates
  • Dividend payout ratios
  • Management’s objectives for the dividend (when provided)
  • The company’s business prospects and growth strategy

Based on my review, I project Emerson’s future dividend growth to be 2-4% annually.

Emerson Credit Rating

A company’s credit rating reflects its ability to meet financial commitments as they come due.  It is a reflection of the strength of their balance sheet and financial condition.

Emerson has an A and A2 credit rating from S&P and Moody’s respectively.  This represents an investment grade, low credit risk evaluation as shown in the chart below.

Table 2: Credit Rating Evaluation Grid

Credit rating evaluation grid for each major rating agency

My conclusion? Emerson’s credit ratings are very solid. They are in line with other high-quality dividend-payers.

Emerson’s Financial Position

Debt to equity checks in at a little less than 1 to 1. Representing a very balanced capital structure.

This is another positive sign of Emerson’s financial strength. And, a company with disciplined financial management.

Now that we know credit ratings and debt levels, let’s talk Emerson dividend safety.

Emerson Dividend Safety

The facts that show exactly how a company’s dividend is working and its safety include:

  • Dividend payout ratios
  • Historical dividend track record
  • Dividend yield
  • Free cash flow generation
  • Financial position & credit ratings
  • Overall business health

Based on these factors, I judge Emerson’s dividend to be very safe. And, safety to me means that a dividend reduction is highly unlikely in the foreseeable future.

Emerson Stock Valuation

Let’s wrap this Emerson dividend stock research up with a look at its stock valuation. I will use several methods to get a perspective on the value.

Those methods will be:

  • Dividend discount model
  • Morningstar fair value estimate
  • Simply Investing report
  • Price to earnings ratio

Emerson Dividend Discount Model

The dividend growth stock discount model uses the following facts and assumptions we have covered thus far:

  • Current annual dividend payments
  • Projected dividend growth

Also, my desired annual return on investment of 9%.

Based on these assumptions, the dividend discount model values Emerson stock at $35 per share.

It is not surprising to me that the dividend discount model sees Emerson stock as extremely overvalued. This model will always place a low value on a dividend income stock with a low yield and slow dividend growth.

Morningstar Fair Value Estimate

The investment analysis firm Morningstar believes Emerson stock is fairly valued at $82 per share.

Source: Morningstar

Simply Investing Report

First of all, the Simply Investing Report is a monthly publication that provides high-quality dividend stock analysis and recommendations. Be sure to read my full review about Simply Investing.

Furthermore, I like to use the metrics from Simply Investing as a cross-check on my analysis. And especially appreciate the publication’s use of dividend yield as a primary indicator of value.

Finally, my last check of the Simply Investing report showed Emerson stock to be overvalued.

Source: Simply Investing

Emerson Stock Price To Earnings Ratio

Emerson’s stock price to earnings ratio is in the mid-20s based on 2020 earnings. To me, this represents a fairly lofty valuation for a slow-growth company.

Emerson Stock Valuation Summary

The valuation measures used show Emerson stock anywhere from slightly to significantly overvalued at recent price levels. When I last reviewed Emerson, I thought this high-quality dividend growth stock was reasonably valued.

Since then, the stock price has rallied. While earnings and cash flow growth have stalled out. Thus changing my view on its valuation.

Let’s wrap this review up with a few concluding thoughts. And my current position and path forward with EMR. Understanding that building and maintaining a growing stream of dividends is my primary investment objective.

Emerson Dividend Stock Analysis – Conclusions

I first established a stock position in Emerson back in 2009 and subsequently added to it in small increments over the years.  However, it still remains one of my smaller positions.

I have been disappointed in the lack of dividend growth. And now, the stock appears to be fully valued at a minimum. Perhaps it is overvalued.

If I didn’t already own Emerson stock, I wouldn’t buy it today. But, I’m going to hold my shares for now.

First of all, it is hard for me to sell out of a Dividend King. Furthermore, I do not want to realize a taxable gain on my shares. Finally, safe industrial stocks that pay dividends can be challenging to find for a long-term buy and hold investor.

So, Emerson stock represents a solid “hold” in my portfolio.

Further Reviews of Industrial Stocks That Pay Dividend Stocks

My Favorite Dividend Investing And Finance Resources

Disclosure & Disclaimer: I am not a licensed investment adviser, financial adviser, or tax professional. And I am not providing you with individual investment advice, financial guidance, or tax counsel. Furthermore, this website’s only purpose is information & entertainment. And we are not liable for any losses suffered by any party because of information published on this blog.

I own Emerson stock and collect the Emerson dividend.