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Why Emerson Electric (EMR) is a Top Dividend Stock for Your Portfolio

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.

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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