Back to top

Image: Bigstock

Why Emerson Electric (EMR) is a Great Dividend Stock Right Now

Read MoreHide Full Article

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Emerson Electric in Focus

Headquartered in St. Louis, Emerson Electric (EMR - Free Report) is an Industrial Products stock that has seen a price change of 5.65% so far this year. Currently paying a dividend of $0.5 per share, the company has a dividend yield of 2.51%. In comparison, the Manufacturing - Electronics industry's yield is 0.32%, while the S&P 500's yield is 1.49%.

In terms of dividend growth, the company's current annualized dividend of $2.02 is up 1% from last year. Over the last 5 years, Emerson Electric has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.19%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Emerson Electric's payout ratio is 58%, which means it paid out 58% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for EMR for this fiscal year. The Zacks Consensus Estimate for 2020 is $3.48 per share, which represents a year-over-year growth rate of 0.58%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, EMR is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Emerson Electric Co. (EMR) - free report >>

Published in