Last update on 2024-06-27

Emerson Electric (EMR) - Dividend Analysis (Final Score: 7/8)

In-depth dividend analysis of Emerson Electric (EMR) revealing a 7/8 scoring based on 8 key metrics highlighting performance stability and attractiveness to investors.

Short Analysis - Dividend Score: 7

We're running Emerson Electric (EMR) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis scores Emerson Electric (EMR) with a 7 out of 8 based on an 8-criteria system for dividend performance and stability. EMR's dividend yield is significantly higher than the industry average, signifying strong income potential for investors. The company's dividend growth rate over 20 years surpasses 5%, demonstrating a positive long-term trend. The payout ratio is sustainably below 65%, and dividends are generally well-covered by both earnings and cash flow, although a recent spike in free cash flow in 2023 needs further examination. EMR has paid stable dividends for over 25 years, with only minor fluctuations, indicating reliability. Their history of consistent share repurchases further underlines financial stability and shareholder value creation.

Insights for Value Investors Seeking Stable Income

Based on this analysis, Emerson Electric (EMR) appears to be a reliable stock for dividend-focused investors. The high dividend yield, sustainable payout ratio, and history of consistent dividends and share repurchases suggest strong financial health and commitment to shareholder returns. Since the stock scored well on the majority of criteria, it is recommended for those looking for a steady income stream and long-term investment stability.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures the annual dividends paid out by a company relative to its stock price. It allows investors to gauge the return on investment from dividends alone. A higher yield generally indicates a more attractive income stream for dividend-focused investors.

Emerson Electric's current dividend yield of 2.1422% is notably higher than the industry average of 1.57%. This indicates that Emerson Electric is providing a more generous dividend return compared to its peers. Looking at the historical data, Emerson's dividend yield has remained relatively consistent, with peaks during economic downturns such as 2008 (3.3597%) and 2015 (3.941%), likely due to falling stock prices as dividends were maintained or increased. This durability in yield even during volatile periods demonstrates Emerson Electric's commitment to delivering steady income to its investors. While currently slightly lower than its 20-year average of approximately 2.68%, the yield still outpaces the industry, signifying Emerson Electric's strong dividend appeal. This trend is favorable for income-seeking investors, suggesting that Emerson Electric could be a reliable component of a dividend-driven portfolio.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate criterion evaluates whether a company’s dividend growth rate has exceeded 5% over the last 20 years. This provides insights into the company’s performance and shareholder value.

Upon examining Emerson Electric (EMR)'s dividend ratio values for the past 20 years and comparing them to the growth rate threshold of 5%, it becomes apparent that the average dividend ratio is approximately 5.145%. As the target growth rate is 5%, EMR's average falling slightly above this threshold indicates a positive trend. However, it is critical to analyze the volatility present within individual yearly dividend growth rates (such as years with negative growth) before concluding firm outcomes. Broadly, EMR has shown it can sustain a commendable level of dividend growth, supporting the notion of continued shareholder returns.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the proportion of earnings a company pays to its shareholders in the form of dividends. A payout ratio below 65% indicates a balanced approach where the company returns some profit to shareholders while retaining enough to fuel growth.

Over the past 20 years, Emerson Electric (EMR) has maintained an average payout ratio of 52.7%, which is comfortably below the 65% threshold. This suggests a sustainable dividend policy, allowing the company to reinvest in its business while keeping shareholders satisfied. Notably, the payout ratio spiked to over 90% in 2016 and exceeded 80% in 2017, potentially indicating periods of reduced earnings, but these spikes are not consistent enough to change the overall positive assessment.

Dividends Well Covered by Earnings?

Explain the criterion for Emerson Electric (EMR) and why it is important to consider.

This criterion assesses if a company's dividends are adequately supported by its earnings, namely through the Earnings per Share (EPS) metric. As dividends constitute an outflow of cash, they must be justified by proportionate earnings. A healthy EPS ensures the company is generating sufficient profit to distribute dividends without compromising financial stability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow refers to the ability of a company to pay out dividends from its free cash flow. This is important because if a company consistently generates enough cash flow to cover its dividends, it indicates financial stability and the potential for sustainable and safe dividends.

In analyzing Emerson Electric's (EMR) ability to cover its dividends with free cash flow from 2003 to 2023, we observe a key trend: EMR has consistently maintained a reasonable proportion of free cash flow for dividend payments until a dramatic increase in 2023. Notably, the coverage ratios generally ranged from about 0.35 to 0.86 before skyrocketing to over 4 in 2023. This suggests that historically, EMR has been financially prudent with its dividend payments. However, the 2023 figure possibly indicates an anomalous spike in free cash flow versus reduced dividend payout, signaling either an exceptionally profitable year or significant dividend cuts. Closer examination is needed to confirm the cause of this anomaly. Historically, maintaining coverage ratios well above 1 indicates good financial health as dividends were sustainably financed from cash flow. The positive overall trend despite the recent anomaly in 2023, suggests that EMR has generally demonstrated solid financial ability to cover its dividends.

Stable Dividends Since the Company Began Paying Dividends?

A stable dividend payout over the last 20 years means the dividend payments did not decline by more than 20% in any given year. This stability attracts income-seeking investors looking for reliable dividend income.

The dividend per share for Emerson Electric (EMR) over the past 20 years showed an overall increasing trend. However, there was a notable drop from $2.385 in 2016 to $1.925 in 2017, marking a decrease of approximately 19.3%. It approached the 20% threshold but did not exceed it, which indicates reasonable stability. This near miss should be carefully scrutinized by investors, but overall, Emerson Electric's dividends have demonstrated considerable resilience. The company's commitment to maintaining dividends makes it attractive for income-seeking investors.

Dividends Paid for Over 25 Years?

Discuss whether Emerson Electric has paid dividends consistently for over 25 years and why this criterion is significant.

Emerson Electric has displayed an impressive record regarding dividend payments over a span exceeding 25 years. The consistency and gradual increments observed in the dividend per share values provide clear evidence of an established commitment to shareholder returns. Over the given years from 1998 to 2023, the dividend per share has shown a general upward trend, significantly rising from $0.605 in 1998 to $2.085 in 2023. Such consistency indicates financial stability and a robust earnings stream. It reassures investors of the company's capacity to generate sustained profit, thereby fostering investor confidence. A prolonged history of persistent dividend payments is generally perceived as an indicator of a company's resilience and prudent financial management, marking it as a favorable trend for long-term shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Emerson Electric (EMR) and why it is important to consider

The trend in the number of shares over the past 20 years shows a consistent decrease in shares, from approximately 841 million in 2003 to 574 million in 2023. This corresponds to an average repurchase rate of -1.8802% per annum. A steady decline in the number of shares usually indicates that the company is actively repurchasing its shares, which often signals a management confident in its financial strength and commitment to return value to shareholders. This trend can be considered positive as it helps in reducing share dilution, potentially boosting earnings per share (EPS) and overall shareholder value.