Is It Worth Considering Emerson Electric Co. (NYSE:EMR) For Its Upcoming Dividend?
Emerson Electric Co. (NYSE:EMR) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 13th of May to receive the dividend, which will be paid on the 10th of June.
Emerson Electric's next dividend payment will be US$0.51 per share, and in the last 12 months, the company paid a total of US$2.02 per share. Looking at the last 12 months of distributions, Emerson Electric has a trailing yield of approximately 2.1% on its current stock price of $95.05. If you buy this business for its dividend, you should have an idea of whether Emerson Electric's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Emerson Electric
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Emerson Electric paid out 56% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 38% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Emerson Electric's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Emerson Electric has delivered 4.2% dividend growth per year on average over the past 10 years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Emerson Electric? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, Emerson Electric doesn't stand out from a dividend perspective. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
With that being said, if dividends aren't your biggest concern with Emerson Electric, you should know about the other risks facing this business. Every company has risks, and we've spotted 1 warning sign for Emerson Electric you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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