Recent Buy

buyTurned out to be another busy month!

The last stock purchase of the month, this one wasn’t actually planned. I was quite content with the four purchases I made in July, all of which were fairly well spread out across the economic sectors and all purchased at what I feel are really solid long-term values.

But value kept on knocking. At some point I just had to answer the door.

And answer I did by adding to one of my older positions for the first time in years. I didn’t anticipate having another opportunity to buy this stock at the same price it was available for about three years ago, but it’s an opportunity I’ll gladly take advantage of.

I purchased 20 shares of Emerson Electric Co. (EMR) on 7/23/15 for $51.66 per share.

Overview

Emerson Electric Co. is an industrial conglomerate that designs and supplies a wide variety of product technology and solutions for industrial, commercial, and consumer markets around the world.

Founded 125 years ago, Emerson Electric is now a $34 billion company that employs 115,000 people across 15 countries.

Emerson’s product and solution lineup is diverse: measurement devices, productivity and control systems, process management systems, electric motors, wind turbine pitch systems, air conditioning compressors, bearings, couplings, and alternators are all among a much larger product and service portfolio.

They operate through five business segments: Process Management (36% of fiscal year 2014 revenue), Network Power (20%), Industrial Automation (20%), Climate Technologies (16%), and Commercial & Residential Solutions (8%).

The company recently announced that it will spin off its Network Power business in a tax-free distribution to shareholders.

International sales represented 58% of total FY 2014 revenue.

Fundamentals

Emerson has one of the lengthiest dividend growth streaks in the world, which is why it’s long held a place in my portfolio. While they’ve had some trouble growing over the last decade, the company is fundamentally sound across the board.

Revenue is up from $17.305 billion to $24.537 billion from fiscal years 2005 to 2014. That’s a compound annual growth rate of 3.96%.

Meanwhile, earnings per share grew from $1.70 to $3.03 over this period, which is a CAGR of 6.63%. Not outstanding, but also not particularly disappointing considering this is a cyclical company that relies on broader economic demand. In addition, like most companies selling products across the world, currency translation has had a negative effect on recent results.

Significant share repurchases have helped the bottom line’s cause; Emerson reduced the outstanding share count by approximately 16% over the last decade.

S&P Capital IQ predicts that EPS will grow at a compound annual rate of 8% over the next three years, which seems realistic. Continued strong share repurchases will help and S&P Capital IQ believes order rates have bottomed. However, restructuring charges related to the aforementioned corporate change could weigh on near-term results.

They’ve had some recent troubles with underlying growth, which isn’t something real surprising for an industrial firm like Emerson. But what hasn’t been nearly as troubled is the dividend.

First, the amazing track record. The company has increased its dividend for an amazing 58 consecutive years.

Think about that. That time frame includes multiple wars, multiple stock market crashes, the invention of the internet, a period of massive inflation, and the Great Recession. If you’re looking for a company that you’re confident will reliably send you an increasing check year in and year out, it’s tough to beat Emerson. I’ve only been a shareholder since 2011, but they sure haven’t disappointed me in regards to growing dividend payments.

Next, the growth. Over the last decade, the company has increased its dividend at an annual rate of 8.1%.

The dividend has grown at a slightly faster rate than underlying earnings lately, but the payout ratio remains a moderate 49.5%. However, Q2 was favorably impacted by a one-time gain of $0.77. Factoring that out, the payout ratio is still reasonable at 62%.

Now, the yield. Currently offering a very attractive yield of 3.64%, that’s difficult to pass up. Not only is that well in excess of the broader market, but it’s also substantially higher than the five-year average yield of 2.7% for EMR.

Looking at the balance sheet, Emerson actually maintains an attractive debt load that’s in line with peers. The long-term debt/equity ratio is 0.35 and the interest coverage ratio is over 16.

Profitability is also well in line for the industry. Over the last five years, Emerson has averaged net margin of 8.93% and return on equity of 20.99%. Speaking holistically, these numbers are fairly robust.

Qualitative Aspects

Emerson’s strength is in the very solutions it offers. By installing process management and productivity measurement/improvement solutions, the company creates long-term business relationships that are tough to terminate. And that’s because their products and solutions are integrated, meaning it can be difficult and costly for a client to switch to a competitor later down the road, giving Emerson fairly excellent long-term revenue visibility.

This installed base gives Emerson an incredible competitive advantage. The larger it grows, the greater the visibility for Emerson’s long-term revenue and cash flow. For perspective, Emerson estimates this installed base to represent approximately $250 billion of infrastructure build-out in 2015, which is an increase of $100 billion since 2005. They expect this to increase to $500 billion by 2025.

That’s emblematic of customers’ willingness to spend on these projects. And that’s also why Emerson’s solutions should remain sticky, as they operate within sizable scale and scope. Minimizing downtime is critical since the very solutions Emerson installs are designed to maximize efficiency and productivity, so digging into infrastructure might not make sense for clients from an economic perspective.

That need for efficiency is important to Emerson. If there’s anything I’ve noticed over the last four or five years, it’s that companies in general and across the economy are constantly interested in improving efficiency. This sometimes results in downsizing, which can be painful for workers. But Emerson’s largest business is focused on improving efficiency through centralized remote management, exact measurement tools, automation, and productivity. This value creation should keep them busy for years to come.

I also believe Emerson’s diversification helps insulate them from any one area of the economy. They’re exposed to a multitude of products and solutions across the industrial space, which probably helps explain why they’ve managed such consistency over such a long period of time.

Risks

The company is exposed to cyclical end markets, which can cause oscillations in its operational results.

In addition, as a global enterprise, currency effects can affect their profitability.

The aforementioned announced spin-off of a major business could weigh on near-term results due to additional costs. There are also execution risks which could play out when the two, separate businesses operate on a standalone basis.

Emerson has significant exposure to the oil & gas industry, which is facing challenges of its own recently.

Valuation

EMR is trading hands for a  P/E ratio of 13.59 right now; however, factoring out a recent one-time gain would increase that to about 17. Either way, the stock is currently trading well below recent historical norms. The five-year average P/E ratio for EMR is 20.2, which is on par with the broader market. In addition, the yield is substantially higher than the recent historical average.

I valued shares using a dividend discount model analysis with a 10% discount rate and a 7% long-term dividend growth rate. I think that growth rate is fair considering EMR’s 10-year dividend growth rate, the moderate payout ratio, and forecast for EPS growth moving forward. The DDM analysis gives me a fair value of $67.05.

However you slice it, EMR appears undervalued right now. Perhaps significantly so.

Conclusion

58 years of dividend raises. Mic drop.

Seriously, though, this is about as blue chip as it gets. If you’re after an attractive yield that’s well above the broader market, a dividend that’s growing much faster than inflation, and a track record that’s longer than 99% of other stocks out there, EMR is your huckleberry. On top of all that, the stock appears very undervalued.

The company’s growth has been somewhat troubled over the last few years, which seems to still be stalled as recently as Q2 2015. But the announced spin-off and other possible restructuring could add value. And I think the stalled growth is more than priced into shares – the stock is down more than 20% over the last year, leading to what I feel is a compelling long-term opportunity. Besides, you generally want to buy a high-quality stock when it’s troubled and cheap, not when everything is rosy and it’s expensive.

Diversified operations that focus on automation, efficiency, and productivity should remain in demand for the foreseeable future. Meanwhile, EMR’s huge installed base gives them incredible competitive advantages and provides a lot of value for shareholders.

This purchase adds $37.60 to my annual dividend income, based on the current $0.47 quarterly dividend.

I’m going to include current valuation opinions from other analysts below, which I use to concentrate my reasonable valuation estimate:

Morningstar rates EMR as a 4/5 valuation, with a fair value estimate of $65.00.

S&P Capital IQ rates EMR as a 3/5 star “hold”, with a fair value calculation of $52.10.

I’ll update my Freedom Fund in early August to reflect this recent purchase.

Full Disclosure: Long EMR.

A shareholder of EMR? Why or why not? Think the value is compelling here? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Similar Posts

127 Comments

  1. Nice purchase! I took a position in Emerson this month as well. It was a stock on my radar a couple years back and I never pulled the trigger. I revisited it earlier in the month and was shocked to see it had come down into the low 50’s. I like the value and the outlook so I’m very happy to be invested along with you in this one!

  2. Good job Jason.

    There are a lot of good deals out there, hopefully the market will come down a lot more in the near future… help us to get some great bargains 🙂
    As soon as I have a little more capital on my side I’ll be taking a greater look at EMR, ITC & KMI (I’ll only be able to pull the trigger on one of them though – for now). I was planning on purchasing KMI this week / today but with the little drop that PG experienced I decided to increase my holding with them.

    Thanks for the great read-up on EMR, really appreciate the work you put in and your reasoning behind your purchases.

    P.S. Any personal preference on EMR, ITC & KMI? If you could only achieve one of them I mean 🙂

  3. Thanks for sharing your purchase, Jason. 20% off isn’t a bad place to dip into the stock. I’m not vested in EMR as I have a lot more that I want to learn about the company. I wasn’t aware of the spin off plans (and then I looked at the press release and saw it was dated today). So thanks for sharing that link, too. And 58 years. Boy. That’s like frequent flyer status for dividend distributions!

    Take care,
    Dylan

  4. Hi Jason, I have a question regarding the Bookkeeping fee. I started dividend investment process last year and right now getting around 1500$ per year dividends (with 28.K as capital). I use TRadeking and have few shares of BNS in my portfolio. I received approx 10$ dividend in my account today and there is also a bookkeeping fee of 1.5$ (Almost 15%). Do you know what is this for before I call Tradeking customer service? Is it common for some shares to have bookkeeping fees? Is there a way to reduce/eliminate the fees? Thanks

  5. Great buy, I love EMR. Out of the two big industrial “XXX Electric” companies, I definitely prefer this one these days. I bought in back in May for like $58/share, but I wouldn’t mind averaging down now at these amazingly discounted prices.

    58 years of consecutive dividend increases is phenomenal. Looking forward to, hopefully, another 58 years!

    I’m so jelly of the amount of equity you purchased this month. You’ve been on a crazy shopping spree, it’s awesome! Keep it up bro.

    Cheers

  6. Chris,

    Glad to be along for the ride with you. EMR hasn’t disappointed me in regards to the dividend over the last four or whatever years. Growth has been challenged, but they’re not alone there. Still a high-quality company. And being able to buy at a discount is a great spot to be in when looking out over the next 20 or 30 years. 🙂

    Thanks for stopping by!

    Cheers.

  7. Regan,

    Definitely some bargains out there. Industrials in particular have been pretty weak lately. Glad to see it!

    Really impossible to compare KMI, ITC, and EMR, however. Totally different businesses with very different risk-reward profiles and dividend metrics. I wouldn’t pick just one, so I don’t. 🙂

    Happy shopping over there!!

    Best wishes.

  8. Nice snag, There’s a lot of value to be had right now. I too recently bought EMR. Also UNP,CMI,CAT. I had some dry powder to add to current holdings! Seems as though the higher quality names are on sale more so now than in past yrs.

    Good Luck,

  9. Dylan,

    Glad to share. Hope it provides some value. 🙂

    58 years is pretty incredible. The economy will be bumpy, and EMR’s underlying results will sway to and fro as a result. But their dividend just continues to grow like clockwork year in and year out. It’s that juxtaposition that makes this strategy so viable and attractive.

    As far as the news on the spin off, the company actually announced that a month ago. Should close late next year. We’ll see how it goes!

    Cheers.

  10. Rav,

    If you’re a US-based investor and you hold BNS in a taxable account, then the Canadian government will withhold 15% as part of a foreign dividend tax withholding. That can be reclaimed at tax time, however.

    If you’re not a US-based investor, I cannot comment. And I’m not sure what else that would be. Beyond that, a call into TradeKing should easily clear it up.

    Hope that helps!

    Take care.

  11. Got them myself just yesterday, 20 pieces at 51.70, shame for being on a trip the day before when the stock hit 50.50, but that’s more of a trader prospective and 1 dollar doesn’t really make all that difference.

    It’s a shame that you are not a DI in European companies, would love to chat about possibilities on the old world market too… 🙂

    ciao ciao

    Stal

  12. Alex,

    It’s been really crazy lately. This level of activity is definitely unusual for me when looking out over my investment career. Super fortunate. I’ll continue to stay aggressive for as long as I can. 🙂

    I didn’t anticipate being able to nab EMR in the low $50s again here a few years down the line, but I’m definitely happy about it. Load up while it’s cheap and keep. We’ll see how it goes, but EMR is about as good as it gets for dividend growth. They manage the cycles well.

    Appreciate the support. Thanks for stopping in!

    Best wishes.

  13. j-harr,

    Nice! There’s definitely a lot of value across the industrial space. And as fortune would have it, that’s where you’ll find a lot of companies with multi-decade track records of dividend growth. It’s good to be a dividend growth investor. 🙂

    Cheers.

  14. Stalflare,

    Great price right there. I highly doubt you’ll look back on that 20 or 30 years from now and regret it. 🙂

    Yeah, I hold some European stocks, but I mostly just stick to the UK market over there. Easier on my taxes. I’m really fortunate that I have free and clear access to the most robust stock market in the world. I try to never forget that.

    Best regards!

  15. Jason,

    The snowball is really showing itself. Keep on crushing it, I hope to get to your level one day. In the meantime its nice to get inspired!

    – Gremlin

  16. Jason, I completely agree with your assessment on EMR. Though it is one if my larger holdings (due to a couple of averaging downs) I am tempted to add more. It is an excellent company.
    Good job on making your capital work harder. The price is really reasonable now.
    D4s

  17. Nice purchase Jason. Im thinking of adding to my position in EMR but also contemplating adding another industrial powerhouse. The 58 year streak is very impressive. Theres just not that many companies in that ballpark. Great company for sure.

  18. You do hold 3 ADRs (I do not count South 32 as a real full fledged ADR), but they are the “easy picks” 🙂 great stocks all three of them…
    Do you screen other UK stocks too? I am also invested in the UK quite heavily (will increase positions soon to match US holdings), mostly for tax reasons…

  19. Gremlin,

    Thanks so much. Appreciate the support! 🙂

    Doing all I can, I promise you that. I’m on it every single day.

    Hope you had a great July over there.

    Best regards.

  20. EMR is a great long term buy. Been with me for 8 years with no plans to sell any time soon. If anything, at these levels I’ll be looking to add to my position. I have EMR along with other industrial names, CAT and DOV on my August potential buy list with the Canadian banks of course. Thanks for sharing. Keep those buys humming.

  21. Hi Jason, I’m with you on that one. I bought 41 shares of EMR recently and would buy again if I would have available cash. I also jumped into Donaldson (DCI) while the stock was on “sale”. Its dividend is really in the low end at 2,1% but the dividend growth history has been incredible and the future seems to be promising too even though maybe less incredible.

    Cheers

  22. D4s,

    Definitely an example of a high-quality company whose stock has been beaten down. Smells like short-term volatility, which usually means long-term opportunity. 🙂

    Thanks for dropping by. Glad to be a fellow shareholder!

    Cheers.

  23. JC,

    They’re in rare company with that streak. Not too many companies can lay claim so something like that. And I see no reason why that dividend will stop growing any time soon.

    You picked up stock in another powerhouse over there in MMM. Hope to land some shares at some point here. 🙂

    Have a great weekend over there!

    Best wishes.

  24. Stalflare,

    Hmm, I actually count five ADRs (factoring out South 32): BP, Shell, Vodafone, Unilever, and BHP Billiton. But there’s nothing wrong with “easy picks”. Successful investing isn’t predicated on finding stocks that are unheard of. In fact, it’s generally quite the opposite.

    As far as other UK stocks go, I quite like Diageo. I imagine I’ll be a shareholder sooner rather than later. 🙂

    Cheers!

  25. Keith,

    I haven’t held eight years yet, but I’m pretty confident I’ll be crossing that mark within a few years. 🙂

    Glad to be a fellow shareholder. Many high-quality industrial companies have fallen hard lately. My capital is spent before it even hits my wallet. So many stocks, so little capital. First world problems are the best.

    Have fun shopping over there. Should be another great month in August.

    Cheers.

  26. Allan,

    Nice move there. Gotta love EMR at this valuation. I’m probably topped up here, but I’m glad to have had the opportunity to load up when I did.

    Donaldson is a great little company. Filtration is ubiquitous and oftentimes necessary. I’ve taken a good look at them multiple times now. Yield’s a little low, but the growth should more than make up for it. Wouldn’t mind owning a chunk at all. Best of luck with it!!

    Thanks for dropping by. Have a great weekend.

    Cheers.

  27. Totally Right! I read the list badly, we own the same UK stocks (I have Diageo too) and yes nothing wrong with the easy picks at all 🙂
    I am eying CLLN over in the UK, but it’s still a little too expensive for my taste…

  28. DEO is currently under SEC investigation. They are a strong company and maybe it won’t be anything, but I would not be comfortable being a shareholder until after that is resolved.

    Good luck with EMR, that was on a short list I was considering for this month’s purchase, but I ended up going with LOW.

  29. Good buy, Jason!
    EMR, DOV and CAT are in my radar. I will wait for better price. With current exchange ( euro near dollar) I have to be more selective.
    Off-Topic: what do you thing abour Novartis (NVS) I think it’s a good stock but a little bit expensive.

  30. Adam,

    Agreed. Although I doubt there’s anything really going on there, it’d be prudent to wait until that clears up.

    Best of luck with LOW. Another great stock with 50+ consecutive years of dividend raises. 🙂

    Cheers!

  31. Javier,

    I’m with you there. Loving the values that can be found on some of these industrial powerhouses. 🙂

    Novartis fell off my radar some time ago due to underwhelming dividend growth. Can’t say I’ve really looked at it in some time now. Wish I could help more!

    Best regards.

  32. DM,

    Looks like a great buy and hopefully at a great time/price too!

    I will heavily consider this for my next purchase.

    Thanks!

    FM

  33. FM,

    Thanks for dropping by.

    Glad the post provided some value for you. EMR is definitely worth a look, in my view. No idea where the stock’s going to go tomorrow, but I’m pretty confident that the dividend will continue to grow at an attractive rate over the foreseeable future. 🙂

    Hope all is well over there!

    Best wishes.

  34. Crazy! I bought 20 shares of EMR as well. The only difference is I bought them today.

  35. Chris,

    Glad to be on the same page. Great minds… 🙂

    Looking forward to seeing how this decision plays out for us over the next few decades.

    Cheers!

  36. Jason, what is a good first order of approximation for selecting dividend stocks? In other words, I am thinking one screen to use initially is to look for companies who have been dividend achievers -ie- have increased their dividends annually for some number of years. After that screening, you look at the business itself and its growth rate prospects based on qualitative and quantitative valuations.

  37. Mantra,

    Glad you bought more of one of your top companies you like! Looks like you and Bert are on the same page with this one. I hope Bert gets to read this post – as you scooped it up a quarter or two less than he did, haha. All in good fun. Great addition to your current position and way to end the month with a bang. I am waiting on a nice little bonus to hit my investment account to have more capital to use… so that’ll be nice for sure.

    -Lanny

  38. Jason,
    “First, the amazing track record. The company has increased its dividend for an amazing 58 consecutive years.” I am 58! That is a long time to keep the string intact. EMR is one of those stocks that I keep looking at but never buying. It will probably be a steady contributor to your dividends, though. Maybe one of these days I’ll find room in the portfolio to add it.
    Best of luck,
    Keith

  39. Awesome company, 58 years and counting is just awesome. Good value right now. What’s not to like? I added it to my IRA this month as well. Great minds…..

  40. AJ,

    Absolutely. I don’t know how you couldn’t like Emerson with a yield this high, a dividend growth track record this long, and a dividend growth rate so far in excess of inflation. Headwinds for sure, but almost every company has some headwinds of some sort. Let’s see how it goes!

    Cheers.

  41. Mark,

    I’m not sure there’s any one right answer for that. Depends on what you’re looking for in terms of yield, valuation, or certain other metrics at any point in time. Even screening for stocks with a P/E ratio below, say, 20 will sometimes throw you off, however, just because earnings are sometimes temporarily skewed. But I do generally cruise for stocks with P/E ratios below 20 and yields above 2%. Sometimes I just run into interesting candidates here and there and then do research from there. No matter how you run into a stock, the due diligence (and then ability to pull the trigger) is what matters most.

    Best regards!

  42. Lanny,

    Ha! A quarter here. A quarter there. Doesn’t really matter. I think the stock was down like a buck the day after I bought it. Can’t time stocks, unfortunately. Wish I could, but it’s good to know it’s completely unnecessary to achieve immense success, passive income, and wealth. 🙂

    A bonus sounds pretty sweet, my friend. Better get that pencil sharpened and shopping list all filled out!

    Best regards.

  43. Keith,

    Definitely. It’s really amazing when you think about what you have to do as a company to keep increasing your dividend for almost six straight decades. I mean the internet wasn’t even invented at the start of that streak. Many companies have a hard time even staying in business that long, yet Emerson has flourished. I like my odds here. 🙂

    Thanks for stopping by. Have a great weekend!

    Cheers.

  44. Ear Money,

    On the same page here. More dividend income to reinvest and keep that snowball rolling! 🙂

    Thanks for stopping by.

    Take care.

  45. R2R,

    Definitely a solid stock to consider. One of my older holdings and very glad to have had the opportunity to add one more tranche. Can’t imagine anyone being unhappy buying EMR right here, right now for the long term. We’ll see! 🙂

    Cheers.

  46. Hey Jason,

    my current EMR portfolio weight is around 3,8% with YOC 3,35%, but I am inclined to increase it/average down a tiny little more. It´s not getting much more reliable than EMR; very cyclical stock: yes! But that´s just it: accumulate in the downtrend.

    Best wishes
    Thorsten

  47. Great minds. I bought some a few weeks ago when it was at like $52 and change. I’m also buying more GILD, AAPL, and GOOGL. Mark my words GOOGL with Porat on board will issue their first dividend in the next 2 years. Maybe you will join as a (very) speculative income play?

    Anyway, glad to be holding EMR in a backdoor roth so getting all that dividend tax free one day will be good times.

  48. Thorsten,

    I’m with you on that one. Add when the cycle isn’t favoring the company. The last few years have been challenging, but there’s a lot to look forward to. Not the least of which is that 3.6% yield that’s growing at a nice clip. 🙂

    Happy to be a fellow shareholder with you. Looking forward to that next EMR dividend, which will now be fairly sizable (for me).

    Cheers!

  49. Hi Jason,

    Seems it’s be the buying week for us too… We just purchased Lafarge-Holcim (the biggest cement company). The share drip 6.7% because of the last individual semester results before the fusion.

    Cheers,

    RA50

  50. dzogen,

    That’d be interesting if Google decides to start paying a dividend. Might take a look at it some point down the line if that becomes the case. Not interested in going crazy on tech, however.

    Nice move on EMR, though. Tough to pass up a blue chip when it’s down this much and the yield this high. 🙂

    Take care!

  51. RA50,

    The time to buy high-quality stocks is always today, right? 🙂

    Best of luck with that stock over there. Always nice to add some equity to the portfolio!

    Cheers.

  52. Jason, EMR got on my radar once they hit the high 50’s and it’s been getting better from there… remember I asked you about that in another post comment thread a few weeks back? Well I’ve finally mobilized some cash (had some after tax money in a bond fund where it sat for some time and I just sold this to get the .22 reloaded). Unfortunately it took some time to clear so I missed the great bargain of 50.25 and I was ready to pounce but I’ll be taking a position here.

    Looks like there are quite a few of us ready to pounce on a bargain. Feels like getting ready to bust into a shopping mall on Black Friday 🙂

    -Mike

  53. Jason: I have been watching this one for quite a while. You did well by making a purchase when the general market takes prices down.. It boosts the yield on cost. I do believe there is some specific volatility but you have buffered it by buying a this price. Long term , it’s a great buy. Keep on keeping on”

  54. Hi Jason,

    Great progress here! You are really on a roll. I tip my hat to you!

    Personally, I do not own any EMR but I may need to take a hard look at it.

    Thanks for the great write up and I hope all is well.

    Ray

  55. “I mean the internet wasn’t even invented at the start of that streak.” Color TV, wireless TV remotes, microwave ovens, cell phones, personal computers, VCRs, DVRs, CDs, cassette tapes, MP3s, streaming video, etc weren’t invented then. Life was so much simpler then. HA

  56. I am not surprised at all that you have added to Emerson Electric when it is trading at current levels.

    I had not realised it was back to levels seen 3 years ago. Excellent opportunity and great buy for the long-term!

    Keep up the good work!

  57. Jason,
    EMR has been on my radar for some time, but is now the right time to drive in and buy EMR?
    Market Edge’s recommendation is to close your position and monitor closely. Also, they say the current technical condition for EMR is weak and the stock remains susceptible to lower prices. The stock has underperformed the market when compared to the S & P 500 over the last ten trading days.
    Thomson Reuters says that EMR has a -21% return for this past year. They also rate EMR earnings as a negative. Revenue growth for the past year ending 03/15 is a -1.9%. There analyst recommend a hold for EMR. So, do you think that EMR will continue along with their excellent dividend paying record?
    These are some of the things that I am looking at with EMR. Please tell me what I am missing? Where are the positives? Learning is never easy. But, by trying you will learn and earn!
    Thanks, for any words of wisdom!
    Nut501

  58. Congrats on the EMR purchase. I just picked up another 29 shares of it myself yesterday to add to my retirement portfolio.

    EMR is one of those stocks where pretty much everything looks right to a dividend growth investor, especially now when it’s 20% or so below its fair value. In addition to the basic numbers, I like to go look at its dividend history in graph form (such as at longrundata.com). That’s a thing of beauty, and even that chart only shows about half of EMR’s 58 year history of dividend increases. What really drives it home to me though is that they’ve been increasing their dividend every year since I was 2 years old. And no, I didn’t own it then (although I wish I did!)

  59. Hi Jason,

    Nice buy with EMR seems like a solid company. I’d be perhaps a little more conservative with the DDM analysis and use a 6 to 6.5% dividend growth rate because that’s more in line with historical EPS growth rate of 6.63%.

    I noticed that up until recently NOV was a five star stock at morningstar but it seems they have downgraded that to a three star stock. I don’t currently have their premium subscription so I don’t know what’s changed but feels kinda cheap to change it up like that. Do you have any idea why their valuation has changed like that? I’m considering averaging down on my NOV position and from what I can see the dividend seems pretty safe but I guess that could also change. I’m really digging the share repurchases they have made with these valuations.

    Are you going to share your watchlist for stocks for August? I’d like to know what’s on your radar. Thanks for writing!

  60. Hi Jason
    It looks like EMR has had a good pull back from its 52 week high. Glad to see you take advantage of this. The dividend is good and safe. i think with the yield more than 3% I don’t see much more down side. I have to say this looks like a well thought out buy on your part. always take advantage of high quality stocks with a dividend when the stock gets put on sale like this. EMR will be around for a long time, I say you will prosper from this buy which I think is so cool. It looks like July is was a good month with all the buys, keep them coming Jason. I have enjoyed reading your journey. again congrats on this buy of EMR.
    Cheers

  61. Nice buy Jason, hard to argue with such long dividend growing streak. Seems that a lot of people are buying EMR lately and I’m not surprised at all considering the current trading level of the stock. That snowball is really rolling faster and faster down the hill for you.

  62. Hey Jason, thanks again for a new buy update congrats! I have been buying the stock for my parent’s retirement account as well. I have been reading over on SA many dividend growth investors selling out of their BAX and BXLT position due to their decreased dividend announcement. Also, jittery over KMI and a SEC investigation into DEO.

    Would you mind giving me your opinion on all of the above. I currently hold all of them and would like to know what you are doing with yours / would do if owned.

    I appreciate it, have a good day.

    – Joe

  63. Hi Jason

    I like to see that you also add capital to existing positions, instead of buying new companies. Emerson is a rock hard dividend stock and at this valuation and dividend yield definately compelling! I have also the impression that your snowball gains speed in the last few month 🙂

    Best wishes

    Marco

  64. Dividend Mantra,
    Thanks for sharing. EMR is a great purchase. You have had a busy month in the purchase department like myself. Keep it up my friend.
    Take care
    LOMD

  65. DM,
    Seems that things are going your way! I’m not familiar with the company, but based on your analysis and the figures it weeks to be a good buy.

    Have you been looking at CAT lately? I might pull the trigger soon!

    Keep rolling that Florida snowball .

    -Ville

  66. Mic drop indeed.

    So EMR has been having recent troubles? Great for us value investors who want to buy a great company at a great value! EMR is a business that I would love to average down on.

    Speaking of great products at a great value, I finished my review of your book. Took awhile, but it’s up. I HIGHLY recommend to anyone who hasn’t bought it yet to pick it up.

    Sincerely,
    ARB–Angry Retail Banker

  67. Well, I guess I will not buy any EMR soon. I back up the truck for XOM today at $79.14 per share. Just could not pass on that opportunity.

  68. aussiestocks,

    Thanks so much. Appreciate the support!

    We’ll see how it goes, but I’m pretty excited. Not many companies out there with this kind of track record.

    Hope you had a great July over on your end.

    Take care!

  69. Mike,

    Nice! I think you’re hunting with something a bit bigger than a .22 over there with the amount of capital you regularly deploy. A great spot to be in, that’s for sure. 🙂

    I’m definitely excited for August. Should have a little capital ready to go early next week and I’ll probably start things off with a bang right away. Let’s hope for more volatility.

    Thanks for stopping by!

    Best wishes.

  70. Amegalo,

    Absolutely. Price and yield are inversely correlated. The cheaper you can get in, the higher your yield. That boosts your income and potential total returns over the long haul. And it makes the dividend growth that much more powerful because you’re boosting a larger base (by being able to buy a larger number of shares with the same amount of money). All in all, good stuff. 🙂

    Thanks for the support!

    Cheers.

  71. Ray,

    Appreciate that. I’m super fortunate right now. I’ve been far more active in regards to stock purchases than I’m used to. I’ll take it while I can get it. 🙂

    Hope you found value in the analysis. EMR is one of those very few companies with almost sixty consecutive years of dividend growth. Not much to dislike about that.

    Best regards.

  72. Keith,

    Yeah, it’s crazy when you think about how much life and technology has changed over that time frame. And yet Emerson has kept right on pushing the dividend higher and higher straight through. If that’s not staying power, I’m not sure what is.

    Life might have been a lot simpler back then, but I’d fight till death to keep my internet! 🙂

    Cheers.

  73. TDD,

    Tough to pass it up here. Emerson continues to treat me right as a shareholder. They’ve been challenged, but I think they’ll be just fine. The dividend continues to grow at a very attractive rate, so I’ve not been disappointed.

    Thanks for stopping by. Have a great weekend over there!

    Best regards.

  74. Nut501,

    Yeah, I guess you have to ask yourself if you want to buy high-quality companies when everything is rosy and valuations are a premium? Or would you rather snag them when they’re having a rough patch and much cheaper? Depends on how much you buy into Buffett’s ideas on being greedy when others are fearful. That’s really an individual call.

    But I think I made my case in the analysis. I don’t follow Market Edge, but Morningstar believes it’s “a compelling opportunity”. You’ll have to really make a call as to whether you agree with that or not. I do. 🙂

    Cheers!

  75. Thor,

    Nice! I’m sure that will all come out when the spin-off gets closer, which should be late next year. But I wouldn’t have anticipated Emerson treating shareholders with anything but extreme fairness.

    Best wishes!

  76. TomP,

    Nice. Glad to be a fellow shareholder with you here. 🙂

    The dividend growth track record is really amazing. They had already been increasing their dividend for well over 20 years (which is already an impressive record) when I was born. Pretty incredible. And I see no reason why that dividend will stop growing any time soon. The odds appear very strong that we’ll continue to collect inflation-beating pay raises over the foreseeable future, and that’s on a yield that’s really rather attractive. Bodes well for us.

    Thanks for stopping by!

    Best regards.

  77. Sampo,

    I don’t think the dividend growth rate was too aggressive. The 10-year growth rate is over 8%. That’s a pretty good proxy for the long haul, as it smooths out cycles. And that’s in line with the anticipated EPS growth rate over the next three years. But you’re free to use any growth rate you’d like.

    As far as Morningstar goes, they’re like all analysts. That’s for better or worse. But they tend to trail the market by a large degree. And I think many of them take a very short-term view on stocks. Stocks will fall and then the fair value calculations tend to trail by a few months and fall as well. Same goes when stocks go up. So you have to take that with a grain of salt. In the end, I look at my own analysis with the most conviction and tend to stick with my own numbers. I like to compare what I come up with some of the services out there to see if I’m way off, but I’m never afraid to go against the grain and go my own way. My fair value calculations don’t change very often. Unless a company is permanently impaired or a dividend changes, the fair value really doesn’t change for me.

    Yeah, I definitely want to put out a list of stocks on my radar for August. Not sure I’ll have the space for it, though. I only have time and space to put out a maximum of three articles per week in general, and it’ll be back to some updates early next week. In addition, I might make a stock purchase as early as Monday, so the content will be ready to be pushed out before I’m even ready. Definitely a good problem to have, but sometimes I don’t get out as much as I want to. We’ll see. Hope to put something out, although the stocks I’ll be looking at in August will mostly be what I’ve been buying lately. More value, more choices. We’ll see!

    Cheers.

  78. Michael,

    Appreciate it!

    Couldn’t agree more. I love to buy high-quality on sale. When others throw away a stock like Emerson, I’ll be there with cash in hand to scoop it (and its 3.6%+ yield) up. 🙂

    July was definitely a great month. It’s been crazy for me lately. I’m used to buying maybe two or three stocks per month, if I’m lucky. There have been many months where I was only able to buy one. So being able to squeeze in five is just nuts. But that’s just the way I am. I have 100% conviction and confidence in this plan. The more I can earn, the more I can save and invest. And that’s just what I’ll do.

    Hope you had a great month as well. Let’s keep it rolling!

    Best wishes.

  79. DD,

    Ha! Yeah, I could have just wrote: “58 years…” But that wouldn’t have provided nearly as much value or information. 🙂

    Thanks for stopping by. Hope you have a great weekend over there!

    Take care.

  80. Tawcan,

    Definitely tough to pass up Emerson here. I thought about passing it up only out of concern over capital levels, but I felt like I could make the stretch here. Glad I made that choice. 🙂

    Thanks for dropping by. Hope you’re able to slow down a bit over there and enjoy the weekend!

    Cheers.

  81. Joe,

    Thanks so much. Super fortunate to continue this crazy capital deployment. It likely won’t be like this much longer, but it’s been a great summer.

    As far as those stocks go, I’d wait to buy DEO until the investigation clears up. I highly bout there’s anything really going on there, as it seems like the odds that the switch was somehow deceitful. But better to be prudent.

    Not concerned about KMI at all, as I’ve written about.

    Definitely disappointed with the unfavorable dividend changes there with BAX/BXLT. I don’t plan on selling either, but I’m not happy that the overall income dropped rather significantly. If they fail to increase their respective dividends when the time rolls around, however, I’ll probably have to look at other options.

    Hope that helps!

    Cheers.

  82. Marco,

    I’m value/opportunity agnostic. If a high-quality opportunity exists within my own portfolio and I have room for it, I’ll gladly add. If it’s a new position, then that’s great, too. I’m happy either way. 🙂

    The snowball is really accelerating here. I’m just doing all I can to keep the pedal to the metal. I think I might have one more aggressive month left in me, but it’ll probably be tough after that. We’ll see!

    Thanks for the support. Have a great weekend over there.

    Best regards.

  83. LOMD,

    It’s great to be in a position to regularly buy high-quality dividend growth stocks, isn’t it? We’re really fortunate.

    Keep plowing that fresh capital into great stocks over there!

    Cheers.

  84. Ville,

    Emerson definitely offers a lot to like. Great yield, solid dividend growth, and a track record that is nearly unrivaled. Good stuff across the board. 🙂

    As far as CAT goes, I’ll likely average down on my position in early August.

    Thanks for dropping by!

    Cheers.

  85. DD,

    Glad to have followed you in on this one. I’ve been a shareholder for years now, and Emerson hasn’t disappointed me at all. They continue to return most of their cash flow to shareholders and will likely keep doing so indefinitely. 🙂

    Enjoy that extra dividend income!

    Best regards.

  86. Markus,

    Yeah, I missed it when it dipped below $92 there a few days ago. I just didn’t have any capital for it. But UNP remains near the top of my watch list. I’m keeping my fingers crossed we see something like that again. Although, I think it’s quite attractively valued here at $97.

    Nice move there, though. Glad to be a fellow shareholder!!

    Cheers.

  87. ARB,

    Thanks so much for putting that together. An in-depth, honest, and balanced review. Much appreciated. Appreciate all the kind words and positive feedback as well. Glad you enjoyed it, think it’s a value, and find it worthy of recommendation. And I’ll keep the criticism in mind when I put the next book together (which should be in 6-7 years). 🙂

    Have a great weekend over there!

    Best wishes.

  88. Ray,

    I’m with you. Some of the supermajors are starting to become interesting here. I think more pain could certainly be ahead based on the last drop and where results/the price of oil/stock prices are currently sitting, but I think XOM at under $80 with a yield over 3.6% appears pretty compelling. And we all know they’re not going anywhere.

    Cheers!

  89. Hi DM, when you say “the cheaper you can get in the higher your yield” that’s only if the price is still ‘cheap’ on the dividend date right? So if you buy a stock when it’s 10% down and therefore the dividend is higher than usual (great!) but then price goes back up 10% and yield goes back down before the dividend payment date, then you do not benefit from that temporary higher yield on the day you bought it. Is my understanding of this correct? Thanks!!

  90. Jana,

    Not quite sure I understand your question…

    The yield really only matters when you actually buy shares. What the stock price does after that fact doesn’t impact the dividend you receive and the yield you “locked in” with your purchase (it will, however, impact your capital gains/losses, which is a separate subject). If you buy Emerson with a yield of 3.6%, and the price jumps higher and brings the yield down to 3.4% a day later, the 3.6% yield is still what you receive on your investment. I think you’re confusing the day-to-day stock movements (and yield movements) with what actually happens when you buy stock. Once you buy stock, that’s the yield you lock in and the number of shares you bought determines the size of your dividend.

    Hope that helps!

    Cheers.

  91. If you have a BB gun and Warren uses an elephant gun, then I think I’m only packing a .22 in this case. That’s ok, it’ll do the job especially if consistently used for several years. You’ve clearly proven that already.

    -Mike

  92. Hi Jason,

    You bet I did. I find all of your write ups to be very informative and factual. Definitely solid for all of your readers! I always look forward to coming to your site and I visit every day. I just do not always comment.

    Once I recover from XOM (large purchase), I will take a strong look at EMR again. You are spot on, nothing like a 60 year track record. That is hard to beat!

    Best, Ray

  93. Oh I didn’t realize that! All of the reading I’ve done on dividends and I didn’t understand that fact. I thought once you bought your shares the dividend yield you receive depends on whatever the yield is at on Dividend Payment day (or perhaps Ex-Dividend date).
    So getting your shares at lowest price possible is even more important than I thought (I thought the only importance was that low price allows you to buy more shares with the money you have allocated).
    So I guess if you buy shares for a company at different price points then your dividend yield is an average of all of those times you bought. So that’s why people talk about their YOC (yield on cost) but then others have said YOC is not worth bothering to figure out – but now that I understand how it works I would think that YOC is very significant (?) since it “locks in” your yield forever.
    Thanks for explaining.

  94. Jan,

    Your yield will fluctuate every day. While your yield is “locked in” on the money you actually put to work via a stock purchase, that sum’s value is changing as stock’s price changes. So the value of your investment will fluctuate and so will the yield. But your dividend is really based on the amount of shares you purchased and the dividend per share.

    The main point is that a lower price offers a higher yield. And a lower price also allows you to buy more shares with the same amount of money. More shares equals a larger dividend. A larger dividend amplifies the effect of a dividend raise. 🙂

    Cheers!

  95. Jason,

    There isn’t much to say, other than I LOVE THE PURCHASE. I bought EMR a few weeks ago for many of the same reasons listed in this article. Great company, amazing dividend growth history, market leader, etc. I fell in love with the company and couldn’t be happier to initiate a position. Congrats on taking advantage of the downturn and continuing to add to your stellar position. If I remember correctly, you said EMR is one of your oldest positions, correct?

    Again, great buy! Keep up this insane month of purchases!

  96. Bert,

    We’re definitely on the same page here. Tough to dislike Emerson here with this yield, growth, and lengthy track record. 🙂

    Yeah, I’ve owned the stock for about four years now. The company hasn’t disappointed me yet. A challenging environment, but they continue to grow that dividend at an attractive rate. Excited to see how it goes for the next four years!

    Thanks for stopping by.

    Best wishes!

  97. Sampo, Jason

    just adding my two cent here:

    Morningstar’s star rating is aligned with their view on fair value vs. market price for shares. Morningstar uses “discounted cashflow” for their valuation which is a different thing to the DDM valuation that Jason runs. In case of companies with along history of increasing dividends this will lead to different results. The key question to ask for DGI is: “will the company still have enough cash to keep paying and increasing dividends”, because if either of the two would cave in, this would show in the DDM valuation. A company with a reasonable payout ratio and longterm growth prospects might well be able to bridge the gap, particularly if it does not want to spoil its history of dividend increases.
    ==> morningstar valuation is more responsive to temporary cash-flow volatility than DDM valuation, morningstar star rating moves accordingly.

    It appears in this particular case of NOV, morningstar figures that oil rigs (apparently what NOV is specialised in) will go through a short-term to mid-term hard period and have therefore revised their view on the fundamentals of NOV. Clearly not a period that should concern someone investing for the next few decades. If NOV would be forced to announce a dividend freeze/decrease, this would be a concern to the DGI investor, but this has not come to pass as of now.

    Thanks

    Philipp

  98. Philipp,

    Thanks for adding that.

    I like to include those other valuation numbers exactly because of that differentiation. The output is only as good as the input, and using different methods to calculate fair value (by different people with potentially different input) will usually yield somewhat different results. I also like to look at my own number and then compare it to what others are coming up with. If I’m way off, then I might take a look. Otherwise, I place a lot of conviction on my own figure, but also include these other opinions so that readers can get a feeling for what some of the professionals think about a particular stock. I think it adds value and insight. 🙂

    And you’re right in that if you’re looking at a discounted cash flow analysis and the cash flow is materially changing over a short period of time, your output is obviously going to change as well. And that’s one reason I like using the DDM analysis. It’s far more long term in scope.

    Best wishes!

  99. Hi Jason, Seems to me that EMR is yet another stock that has dropped in anticipation of the Fed’s rate increase. From around 70 to 52 is quite a drop. I’ll buy in at this price!! And average down if it drops further when the Fed raises rates. There’s so much commotion about this rate increase. It’s amazing. Rates have been at near zero for years and everyone is acting like the world will fall apart if JY raises rates a quarter of a point, i.e. returning rates to a more “normal” level. No, I do not want to pay more for an adjustable rate mortgage but I just did a 3.75% fixed for 30 year re-fi on one of my properties. And on another property too. I would not be surprised that when JY raises rates the market tanks for one day or even goes up. I noticed that Realty Income has come way up off it’s lows. DF

  100. I too am not at all concerned with KMI. The herd of investors are confusing and thereby correlating oil prices with natural gas prices. DF

  101. DF,

    Regardless of the reason behind EMR’s drop, I’m sure glad it occurred. I was going to hold my shares and collect my dividend income either way, so the drop just gave me a chance to add more. Very happy for that.

    And it looks like it gave you a great opportunity as well. Life is good. 🙂

    We’ll see how it goes with Emerson, but I can’t imagine that dividend stops growing anytime soon. They’ve operated through a lot of environments, including those with much higher interest rates.

    Thanks for dropping by!

    Best regards.

  102. Hey buddy, another good buy!
    Out of interest do you also keep an emergeny fund or is every dollar going into the buys?
    Cheers
    Geoff NZ

  103. Geoff,

    Thanks for dropping by from NZ! 🙂

    I keep a few thousand in my bank account for emergencies. And then I have to keep cash aside for quarterly estimated taxes, which gets sent in to the IRS every three months. Other than that, I invest every dollar.

    Best regards.

  104. What chart services or online tools do you use or suggest? Are you a premium morningstar user?

  105. Thanks mate all good down here. Sold my portfolio and sitting in cash. Collosal housing bubble here where I live in Sydney. Median household incomes here are $80k per annum yet median house price $900k. And this suburb is about 40kms from city centre. Waiting for a crash so I can buy a property cheap. Cash is giving a about 3%, it’s pretty shitt@ but bad things are brewing here in Australia and it won’t be pretty. Cheers Jason.

  106. Hi DM,

    Seems like an amazing buy to me. And 58 years of dividend growth isn’t something to sneeze at.

    Cheers,
    G

  107. Hi Dividendmantra,

    First of all, thanks a lot for your inspiring blog. This is truly helpful for us growth Investors outside of US (Sweden in this case). Would be truly grateful if you could comment your calculation of 8,1 % 10Y CAGR as I receive a different figure. Thanks a lot in advance!

    Best regards
    Swedish dividender

  108. Hannah,

    Thanks for dropping by!

    I don’t find it necessary to use a lot of tools outside of annual reports and a calculator. But I do like showing fair value figures from other professional analysts so as to provide extra value and insight to you readers.

    That said, I’ve listed pretty much every resource I use here:

    https://www.dividendmantra.com/getting-started/

    I think David Fish’s CCC list is invaluable. The screener I have listed there can sort out potential candidates for you. And Morningstar is a really great service for pulling up financial figures from most companies. I find they tend to be more accurate than just about anyone else. And you don’t need their premium service to get value.

    Hope that helps!

    Cheers.

  109. Geblin,

    Thanks!

    Tough to dislike that kind of dividend growth track record. They’re in pretty rare company there. Then you add in that high yield and pretty attractive dividend growth rate. Had to pick up another tranche here. 🙂

    Best regards.

  110. Swedish dividender,

    Thank you so much. Glad you find value and inspiration in the blog. I do my best! 🙂

    I use David Fish’s CCC list for the 10-year dividend growth numbers. He tracks the more than 700 US-listed stocks that have increased their dividends for at least the last five consecutive years:

    http://www.dripinvesting.org/Tools/Tools.asp

    Take care!

  111. Interested to hear your thoughts on the oil majors. After XOM and CVX took big hits, I decided to scoop up 20 shares of XOM as a starting position and currently debating if I want to average down on CVX. Of course, the issue there is that I’d be over-exposed to oil & energy stocks for the time being.

    Part of a major issue I have with my portfolio (I’m 22 yo and have a $15k portfolio) so any large purchases I make as a result of my job, shift my portfolio exposure to that sector considerably. Was this a growing pain you encountered as well?

  112. nishnash14,

    Exxon Mobil is definitely the strongest of the supermajors. Long has been. I think there could very well be further pain ahead, but that all depends on how long oil stays low, which is impossible to know. I wouldn’t mind adding to my XOM position here, however. I’m becoming increasingly lukewarm on the major oil plays in general and further limited by my own exposure, though.

    As far as sector allocation goes, I discussed that here:

    https://www.dividendmantra.com/2015/05/sector-allocation-as-it-pertains-to-dividend-growth-investing/

    I don’t think paying real strong attention to sector allocation makes a lot of sense until you come up on six figures. And that’s because when a portfolio is still small, any activity makes big changes. That said, I tried to build up a portfolio that holistically made sense for me all along.

    Hope that helps!

    Best regards.

  113. Erik,

    Nice! I doubt the you of 20 years from now regrets that move. 🙂

    Glad to be a fellow shareholder. Let’s see how it goes!

    Best regards.

  114. I might actually hold on to some company stock this year. I just don’t want it comprising too large a part of my portfolio.
    Wallet Engineer

Leave a Reply