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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