Dividend Aristocrats

Investing in Emerson Stock, a 64 Year Dividend Aristocrat

Emerson Stock is a member of the prestigious S&P 500 Dividend Aristocrats. The aristocrats are a group of 64 stocks that have consistently raised dividend payments every year without missing even one. Hence, they are some of the best dividend stocks in the stock market. In fact, not only is Emerson a dividend aristocrat, it is also a Dividend King having been one of the handful of companies grown dividends for over half a century.

Emerson’s Management last raised the dividend by 2% from $0.49 per share in September 2019 to $0.50 per share in December 2019. The company has raised its dividends for a stunning 64 consecutive years.

The purpose of this article is to review Emerson’s business operations, latest financial results, explore its dividend payments history, stock valuation and long term performance to the S&P 500 and its peers in the S&P Industrials sector (XLI). Should you consider adding Emerson Stock to your long term dividend growth or high dividend yield portfolio? Read below to find out!

Business Synopsis

Emerson’s founding goes back to 1890 when American Civil War veteran John Wesley Emerson started to manufacture electric motors and fans. Thanks to strong demand, the company expanded its line to sewing machines and power tools. Today, Emerson has achieved a global manufacturing behemoth status employing over 90,000 people across 2 lines of business. They are:

1) Automation Solutions – This segment helps other manufacturers drive productivity, make processes efficient and make the environment safe by selling products used for measurement and analytical instrumentation, industrial valves, process control software and related systems. Some of the newest technologies offered under this segment is the PlantWeb digital ecosystem that allows for remote monitoring in industrial settings including field sensors, communication gateways and controllers, etc.

2) Commercial and Residential Solutions – This segment sells technologies like residential heating and cooling, air conditioning and refrigeration for industrial settings, etc. As an example, it sells remote monitoring units that optimize cooling and refrigeration used in grocery stores, supermarkets, convenience stores, etc. This unit also sells cargo monitoring solutions ensuring food that travels from the farms to grocery stores and other outlets remains fresh and safe to consume.

This diagram above from Emerson’s 2019 Fact Sheet shows how truly global this enterprise is. Generating $18.4 billion in revenues in 2019 and employing 88,000 people globally, it’s largest market is United States and Canada at $9.1 billion in revenues, followed by Asia at $4 billion and Europe at $3.2 billion. Middle East, Africa and Latin America generate roughly $2.1 billion in revenues with fewer locations.

Revenue Analysis and Share Repurchases

For fiscal 2020, Emerson generated $16.78 billion in revenues and earned $1.96 billion in net income, implying a net profit margin of 11.7%.  Operating cash flow came in at $3.1 billion and diluted earnings per share reported at $3.24 per share.

Revenues in 2020 slid 9% year over year from 2019’s total of $18.37 billion. Earnings per share slid 12.% year over year from 2019’s EPS of $3.71 per share. The decline in revenues was due to a $1.04 billion drop in Automation Solutions and $526 million drop in Commercial & Residential Solutions.

In August 2020, the company gave an updated guidance expecting sales decline between 9% to 10% with a final number at 9%. Cash flow management was very strong with management spending $538 million in capital expenditures, $950 million in share repurchases and generating free cash flow of $2.55 billion.

Trading on the New York Stock Exchange, Emerson sports a $48 billion market capitalization and pays a dividend yield of 2.5%. This yield is 90 basis points higher than the yield on the S&P 500 which is 1.6%.

In 2019, Emerson acquired eight businesses and integrated them in to its Automation Solutions segment with a total capital outlay of $469 million net of cash acquired. These businesses added $300 million in annual revenues to Emerson’s books.

Prior to 2019, Emerson acquired Aventics, a technology company that manufactures pneumatics technologies used to power factory and machine automation for $622 million.

Growth Outlook

In 4th Quarter, 2020 earnings, Emerson reported revenues of $4.558 billion, down 8% from the same quarter in 2019. Adjusted earnings per share came in at $1.1, down 4% from same quarter in 2019. Earnings per share declined lower than revenues thanks to cost cutting measures put in place by management.

Management provided guidance for fiscal 2021 including total revenues of $17.1 billion with net sales growth between 1% to 4%. Some key assumptions made include industrial demand recovering by 3rd Quarter, 2021 and oil prices stabilizing around $35 to $50 per barrel.

The company expects to spend $600 million in Capital Expenditures, $1.2 billion in paying dividends and between $500 million to $1 billion in share repurchases or mergers & acquisitions. Restructuring efforts are expected to save the company $200 million in operating costs.

Dividend Growth History

Emerson has a long history of growing dividends. In fact, the company is a dividend aristocrat and a dividend king having raised dividends for 64 consecutive years. With data from the company’s Investor Relations website, the company has grown its dividend from a modest $0.25 per share in 1988 to $1.96 in 2019. This represents a compounded annual growth rate (CAGR) of 7% over 31 years.

Attached chart shows a steep uptrend in the company’s dividend history. It is important to note that dividend growth has matured in the more recent years from 2014 to 2019 growing in low single digits.

Attached chart shows the year over year percentage change in Emerson’s dividend. During the 90s, the company grew its dividend in high single digits or low double digits. During the technology bubble of 2000s, this rate of growth slowed to low single digits. Highest growth was 18% in 2007.

Over the last 5 years, Emerson’s dividend growth has been in the paltry low single digits as the company dedicates more cash towards acquisitions and growth, while still maintaining its dividend king status. In fact, the 5 year average dividend growth rate sits at just 1.25% which is below inflation.

Measuring the Dividend Payout Ratio

Lets calculate the dividend payout ratio for Emerson Stock. Dividend Payout Ratio measures how much of a company’s free cash flow is paid out in the form of dividends.

Free cash flow is the cash a company generates from daily operating activities minus capital expenditures like investing in new plants or equipment.

Free cash flow is calculated from the statement of cash flows, and is not artificially modified using accounting rules or non-cash expenses like depreciation, amortization, fair value revaluations, etc.

In 2020, Emerson generated $3.08 billion in cash from operations and spent $538 million in capital expenditures. What is the free cash flow?

Free Cash Flow = Cash from Operations – Capital Expenditures

Free Cash Flow = $3.08 billion – $538 million

FCF = $2.54 billion

For fiscal 2020, Emerson paid $1.2 billion in dividends. So what is the dividend payout ratio?

Dividend Payout Ratio = Total Dividends Paid / Free Cash Flow

Dividend Payout Ratio = $1.2 billion / $2.54 billion

DPR = 47%

Having increased dividends for 64 consecutive years and still maintaining a dividend payout ratio of under 50% is simply brilliant. This gives Emerson plenty of cash flow available to make lucrative acquisitions, increase share repurchases, grow the dividends over the long term and maintain profitability.

Long Term Stock Performance

Emerson Stock has risen from a modest $9 per share in 1990 to $80 as of January 2021. This represents a compounded annual growth rate (CAGR) of 7.5 % over 30 years. Please note this does not include dividend payments issued by the company. If dividends were re-invested over the last 30 years, the total rate of return would be much higher than 7.5%.

During the great financial crisis of 2008, the company’s stock dropped from $58 per share in May 2008 to $26 per share in March 2009. This was a cumulative drop of 55% from peak to trough. This is also in line with the drop experienced by S&P 500 at 56%.

Stock Valuation

Bloomberg Analysts’ Consensus expects Emerson to earn $3.45 per share in 2021. Using the current stock price of $80.37 and dividing it in to the expected EPS, we arrive at a forward price to earnings ratio of 23.3. This valuation is in line with that of the S&P 500 which trades at 22.6 times 2021 expected earnings.

Executive Summary

Here is what we like and don’t like about Emerson (EMR) Stock.

Likes

  • 64 years of growing dividends making this a dividend aristocrat stock.
  • A decent dividend yield of 2.5%.
  • Dividend payout ratio of just 47% which means the company can keep growing its dividend steadily over the next 5 to 10 years.

Emerson Stock Dividend Dates

Visit Emerson’s Investor Relations | Resources | Dividend History webpage to see a history of dividend payment dates, record dates and quarterly dividends $$ per share.

Year Payment Date Record Date Amount
2020 06.10.2020 05.15.2020 $0.50
03.10.2020 02.14.2020 $0.50
2019 12.10.2019 11.15.2019 $0.50
09.10.2019 08.06.2019 $0.49
06.10.2019 05.17.2019 $0.49
03.11.2019 02.15.2019 $0.49
2018 12.10.2018 11.16.2018 $0.49
09.10.2018 08.17.2018 $0.485
06.11.2018 05.11.2018 $0.485
03.09.2018 02.16.2018 $0.485
2017 12.11.2017 11.17.2017 $0.485
09.11.2017 08.11.2017 $0.48
06.09.2017 05.12.2017 $0.48
03.10.2017 02.17.2017 $0.48
2016 12.09.2016 11.11.2016 $0.48
09.09.2016 08.12.2016 $0.475
06.10.2016 05.13.2016 $0.475
03.10.2016 02.12.2016 $0.475

EMR Latest Stock Quote

To view the latest quote on EMR Stock Price, visit the company’s Investor Relations homepage and the information is on center right of the screen.

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