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Emerson Electric Co. (EMR)

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Emerson Electric was established in 1890 in St. Louis, Missouri as Emerson Electric Manufacturing Co. The company manages five business segments: process management, industrial automation, network power, climate technologies, and tools and storage. Its primary products include motors, drives, actuators, valves, switches, test equipment, air conditioning compressors, electric tools and home storage solutions. Emerson’s best-known brands include RIGID tools, ClosetMaid organizers, and InSinkErator garbage disposals. Its current total market capitalization of $43.8 billion makes EMR a large capitalization stock (a large-cap stock has a market capitalization value of more than $10 billion) and its long history of consistent earnings growth and dividend payments makes it a solid company. It is considered a solid and well-diversified business with a wide economic moat and sustainable competitive advantage over its rivals, which enjoys a solid corporate culture


According to Yahoo! Finance, consensus estimates call for the company to earn about $3.63 per share this year, and to go to about $4.02 per share on 2021. Emerson has paid dividends to investors since 1947, and has increased its payments for 63 consecutive years, which makes it a dividend aristocrat (the dividend aristocrats are companies within the S&P 500® index that have raised their dividends for at least 25 consecutive years). During the past five years it has increased its dividends at an average rate of 2.31%, with its quarterly payment of 50 cents currently providing a yield of 2.71%.


The value of dividends reinvestment: A hypothetical investment in EMR has grown cumulatively (including dividends reinvested) 6,137.01% during the past forty years. The same investment has grown only 2,388.99% during the same period of time, excluding dividends. According to data and calculations of the financial website dqydj.com, a periodic monthly investment of $100 in EMR for the past 40 years would has grown to $1,804,827, including dividends reinvested.


The stock exhibits a healthy Dividend Payout Ratio (DPR is the proportion of earnings paid out as dividends to shareholders) of 53%, which means the company is paying out only 53% of all its net income in dividends, and is retaining some percentage of its earnings to reinvest or grow the business. Its current Price to Earnings ratio (P/E --a measure of valuation) of 19.31 is 14% below the US Market Index. The forward P/E ratio is 19.61. According to Morningstar, the stock is trading 3.2% below its Fair Value Estimate, making it attractive for investors with a long-term investment horizon.


Technically (from the chart’s perspective) EMR also looks attractive, trading 10.1% below its record high, while it is forming a price consolidation pattern between $56 and $78 approximately, in which $56 is acting as a technical support level. The actively managed mutual funds American Funds Income Fund of America and American Funds Fundamental Investor are major shareholders of EMR, holding 1.5% and 0.8% of its shares respectively. The stock is also one of the 63 holdings of the mutual fund managed by Moneypaper Advisors, the MP 63 Fund (DRIPX). Emerson’s main competitors are Honeywell International Inc. (HON) and Rockwell Automation Inc. (ROK). Volatility and risks: EMR’s five-year Beta (a measure of the volatility, or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is 1.38, so the stock is 38% more volatile than the Market.


Best and worst years during the past 40 years: Its best year was 1991, in which EMR returned, excluding dividends, 45.7%. On the flip side, its worst year was 2008, when the stock declined 35.39%, excluding dividends. EMR’s dividend reinvestment plan charges no fees for cash investing, dividend reinvestment, safekeeping, automatic investment or termination of the plan. With the stock being fundamental and technically attractive, this company is an appropriate holding for investors who wish to build a holding over the long term.


Disclosure: Mario Medina is a long-term investor in Emerson Electric Co. (EMR), and his investment strategy consists on investing small amounts periodically (also known as dollar-cost average or DCA), with a long-term view. The author is the co-manager of the MP 63 Fund (DRIPX), which also holds a position in the company. The author wrote the article himself and it expresses his own opinions. The author has no business relationship with EMR and this article is not intended as a recommendation to invest as the information published does not take into account any subscriber's personal finances, goals or risk tolerance. Accordingly, you should be aware of all the risks associated with any financial investment and should consult an independent financial advisor for any personal investment advice.