Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor’s dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
– Zacks
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company’s earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Emerson Electric in Focus
Headquartered in St. Louis, Emerson Electric (EMR) is an Industrial Products stock that has seen a price change of 4.84% so far this year. The maker of process controls systems, valves and analytical instruments is paying out a dividend of $0.51 per share at the moment, with a dividend yield of 2.11% compared to the Manufacturing – Electronics industry’s yield of 0.36% and the S&P 500’s yield of 1.31%.
Looking at dividend growth, the company’s current annualized dividend of $2.06 is up 2% from last year. Over the last 5 years, Emerson Electric has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.39%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. Emerson Electric’s current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.
EMR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $4.91 per share, representing a year-over-year earnings growth rate of 19.76%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It’s important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, EMR is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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Emerson Electric Co. (EMR): Free Stock Analysis Report
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