Sunday, October 18, 2015

Emerson Electric Dividend Machine Performance



Dividend stocks remain the best investment alternative for income investors.  I had hoped that by now our economy would be humming along enough that interest rates would edge up to where we could begin to diversify our income investments to include more bonds.  Sadly, that is not the case.



Bond yields still too low

I cannot predict how long it will take for bonds to deliver yields that are competitive with quality dividend stocks but I know some day it will happen.   Having lived through times when interest rates on investment grade corporates were in the double digits, I know that sense of comfort at having a big chunk of my portfolio in government backed seven percent bonds and some in certificates of deposit in double digits.

Those of us who no longer have a paycheck coming in do not have the luxury of waiting for the bond market to deliver the yield we need to pay our bills. 

Put new capital to work 

This week, October calls, expired.   As readers of this blog know, I use covered calls on dividend stocks to enhance my income.   This weekend several of my calls were assigned which means the person who paid me money for the option to buy these stocks at a specific price on or before October 16, 2015 actually did buy the stocks. 

These stocks included General Electric (GE), Bristol-Myers (BMY), and DuPont (DD.)    Bristol Myers and DuPont’s yield were well below my requirement and I used the calls to lock in my gains and liberate capital for reinvestment.  The stocks may continue to rise but I do not care as I know I can find more income in the same space from another stock.

GE, on the other hand is finally turning things around but I have reservations. GE’s negative EPS is one example.   I was able to lock in a bit of gain on GE.  I received their most recent dividend as well as the call premium and since I have reservations about the success of their turnaround, I was happy to give up the 3.28% yield and liberate some capital for reinvestment.

Emerson Electric symbol EMR my next 2015 Dividend Machine stock

The point of this post is to profile another diversified industrial that pays more of a dividend than GE, has increased the dividend every year for over fifty years, has other solid fundamentals and I hope will be good place to put my GE proceeds.

Emerson Electric as a 2012 Dividend Machine
 
Emerson was a Dividend Machine in 2012 when my four criteria were nearly identical to my current criteria, however, at that time I required a yield of greater than 3% where as now, I require a dividend yield of 3.5% or more.   The other difference is the amount of dividend increase I expect from Emerson.   

In 2012, I simply required a solid history of dividend increases.  In 2015 I require an average annual dividend increase over the past five years of 4%.

You can see EMR’s fundamentals from 2012 in the table above.   Total return on this stock from 2012 has been tepid.  But, remember I am an income investor and concentrate on current cash flow to me and expected future cash flow increases.

EMR has had some covered call opportunities as I noted in the original post on EMR so income has been solid and income increases have been solid.   EMR’s Stock price is stuck in the mud and very near the 5 year low which gives me the opportunity to buy this solid company with a greater than four percent yield.

Emerson Electric Dividend Machine Fundamentals 2015

Currently, EMR’s latest four quarter earnings were $3.59 per share.  Dividends paid out during the same time frame were $1.88.  At the closing price of $45.27 on Friday October 16, EMR’s yield is 4.02%.   

EMR’s has a compelling dividend history having raised the dividend for over fifty years.  Over the past five years dividend increases have averaged 8.06% which are double what I require. 

EMR’s D/E ratio at .8537 is below my requirement of less than 1 but for those with a keen eye, you will note that their debt is at an all-time high.   I can live with this as EMR has borrowed at very low rates.  See EMR’s Dividend Fundamentals in the table below.


If you are nervous that the industrial sector will continue to suffer losses, you could enhance your income with calls.   I see three of interest: a December $48 at about $.70; a January $47.50 at $1.15 and a January $50 at $.50.   There is no guarantee that your stock will be assigned but you will have the benefit of pocketing the next dividend which is expected in November, 2015 and the call premium.

Consider EMR for the income producing portion of your portfolio.

TheMoneyMadam

Disclosure:  Anticipate adding EMR next week


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