Wednesday, April 9, 2008

Emerson Electric (EMR) Dividend Analysis

Emerson Electric Co., a diversified global technology company, engages in designing and supplying product technology and delivering engineering services to industrial and commercial, and consumer markets worldwide. It operates in five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools.
EMR is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 50 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 10.50 % to its shareholders.


At the same time company has managed to deliver a 7.50% average annual increase in its EPS since 1998.















The ROE has increased from its early 2000’s lows at 15-17% to 24% in 2007.














Annual dividend payments have increased over the past 10 years by an average of 7% annually, which is equal to the growth in EPS. The annual growth in dividends has directly traced the fluctuations in EPS growth. A 7% growth in dividends translates into the dividend payment doubling almost every 10 years. If we look at historical data, going as far back as 1989, EMR has actually managed to double its dividend payment every nine years.














If we invested $100,000 in EMR on December 31, 1997 we would have bought 3720 shares (Adjusted for two 2:1 stock split in December 2006). In February 1998 your quarterly dividend income would have been $549. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1419 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 103 %. If you reinvested it though, your quarterly dividend income would have increased by 159%.















The dividend payout increased from 43% in 1998 to more than 65% in the early 2000’s before settling back to 40% in 2007. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.













I think that EMR is attractively valued with its low price/earnings multiple of 19 and yield at 2.20%.

Disclosure: I own shares of EMR
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4 comments:

  1. Interesting read. This is not one that I have looked at.

    Best Wishes,
    Dividends4Life

    ReplyDelete
  2. 4Life,

    EMR has been increasing dividends for the past 50 years. If your grandpa bought it for his retirement, you could live off this incom stream in your retirement as well :-)
    I just screen both of the aristocrats lists for lower DPR, higher yield ( at least equal to SPY current yield) and a not too rich P/E. The dividend growth rate is not too rich but its more than 5% which works for me.

    ReplyDelete
  3. Incredible how no one asks HOW Mr. Farr and Emerson has achieved this - its called offshoring! Farr's directives to his companies is to move ALL lower end labor (accounting, customer service, marketing, engineering) oversees to save $$. But how long can this last, when you are inherently limiting your market potential in the US because there aren't any more jobs???

    ReplyDelete
  4. Super_Duper,

    Although I cannot attest to the accuracy of your comment, I appreciate you stopping by!

    Best Regards,

    DGI

    ReplyDelete

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