Emerson Electric Co., is a diversified global technology company, that engages in designing and supplying product technology, as well as delivering engineering services and solutions to various industrial, commercial, and consumer markets worldwide. The company is a member of the dividend aristocrat index, having raised distributions for 53 consecutive years.
Over the past decade this dividend growth stock has delivered an annual average total return of 7% to its shareholders. The stock is up almost 100% from its 2009 lows.
The company has managed to deliver a 3.60% average annual increase in its EPS between 2000 and 2009. Analysts are expecting an increase in EPS to $2.41 in 2010 and $2.90 by 2011, which would be an increase from FY 2009 EPS of $2.27. Short-term results showed that despite the diversified business conducted in five major segments, the company is not immune to cyclical movements in the overall economy. After steep declines in revenues in 2009, analysts expect Emerson to report flat revenues in FY 2010, followed by an increase as a result of the pickup in economic activity later this year. The company is focusing its long-term growth efforts in emerging markets, telecom and retail industries as well as services, power generation and process automation technologies as well as product innovation.
The Return on Equity has increased over the past decade from a low of 14.50% in 2000 to 19.50% in 2009. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by an average of 7% annually since 2000, which is slightly lower than the growth in EPS.
A 7 % growth in dividends translates into the dividend payment doubling every 10 years. If we look at historical data, going as far back as 1982, Emerson Electric Co. has actually managed to double its dividend payment every nine years on average.
The dividend payout ratio remained below 50% for the majority of the past decade. The only exception were the 2001-2003 and 2009 periods, because profitability suffered from economic downturns at the time. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Emerson Electric is trading at a Price to Earnings multiple of 21.50, yields 2.80% and has a dividend payout that is higher than 50%. Despite the fact that the company has a good business model, the stock is slightly overvalued at the moment. I would only add to my position in the stock on dips below $45.
Full Disclosure: Long EMR
- Dividend Aristocrats List for 2010
- Ten Dividend Kings raising dividends for over 50 years
- Where are the original Dividend Aristocrats now?
- Estimating future Dividend Growth
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