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Are You Looking for a High-Growth Dividend Stock? Emerson Electric (EMR) Could Be a Great Choice

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Emerson Electric in Focus

Emerson Electric (EMR - Free Report) is headquartered in St. Louis, and is in the Industrial Products sector. The stock has seen a price change of 8.66% since the start of the year. The maker of process controls systems, valves and analytical instruments is paying out a dividend of $0.5 per share at the moment, with a dividend yield of 2.31% compared to the Manufacturing - Electronics industry's yield of 0.3% and the S&P 500's yield of 1.47%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.02 is up 1% from last year. In the past five-year period, Emerson Electric has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.27%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Emerson Electric's payout ratio is 56%, which means it paid out 56% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for EMR for this fiscal year. The Zacks Consensus Estimate for 2021 is $3.71 per share, representing a year-over-year earnings growth rate of 7.23%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that EMR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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