Emerson Electric‘s (NYSE: EMR) dividend history is long, and the stock might make a solid addition to your income portfolio. Income investors seek a steady stream of dividends, so Emerson might be a good stock to buy. Let’s take a look at the business, dividend history and payout safety going forward.
Business Overview and Highlights
Emerson Electric is a $49 billion business. The company is based out of Saint Louis, Missouri and employs 76,500 people. Last year, Emerson Electric pulled in $15 billion in sales, which works out to $200,000 per employee.
The company operates within the industrial sector and maintains a solid credit rating (A) from the S&P. This allows Emerson Electric to issue cheap debt to expand operations and finance other initiatives.
One expansion to Emerson will be Intelligent Platforms. It’s a division of General Electric that the company has agreed to acquire. Emerson is a growing business and it’s rewarded shareholders with dividends.
10-Year Dividend History
The company paid investors $1.2 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.92. That’s a 60% increase! You can see the annual changes below.
The compound annual growth is 4.8% over 10 years… but over the last year, the dividend climbed 1.1%. The slowdown in dividend growth isn’t a great sign. However, Emerson Electric still might be a decent income investment. Let’s take a look at the yield.
Current Yield vs. 10-Year Average
Emerson Electric’s long history of paying dividends makes it one of the top dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 2.49%, which is below the 10-year average of 3.67%. The chart below shows the dividend yield over the last 10 years.
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean-reverting with share price changes.
Improved Dividend Safety Check
Many investors look at payout ratio to determine dividend safety. To do this, they look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 Emerson Electric earns, it pays investors $0.60.
Payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. Free cash flow is a better metric.
Here’s Emerson Electric’s payout ratio based on free cash flow over the last 10 years.
The ratio is volatile over the last 10 years and the trend is up. The last reported year shows a payout ratio of 85.9%. This doesn’t give much wiggle room for Emerson Electric’s board of directors to raise the dividend.
Closing Thoughts on Emerson Electric’s Dividend History and Safety
Emerson Electric’s dividend history is giving long-term dividend investors a red light. Investors have bid up the share price and the yield is low. On top of that, the payout ratio is trending up and serves as a sign of future dividend safety.
If you’re interested in seeing more, please comment below. You can also check out our dividend reinvestment calculator.
Good investing,
Rob
