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

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

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 22.53% so far this year. The maker of process controls systems, valves and analytical instruments is currently shelling out a dividend of $0.5 per share, with a dividend yield of 2.05%. This compares to the Manufacturing - Electronics industry's yield of 0.58% and the S&P 500's yield of 1.34%.

In terms of dividend growth, the company's 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 1.31%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Emerson Electric's current payout ratio is 55%. This means it paid out 55% 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 $3.94 per share, representing a year-over-year earnings growth rate of 13.87%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. That said, they can take comfort from the fact that EMR is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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