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Are You Looking for a High-Growth Dividend Stock? Emerson Electric (EMR) Could Be a Great Choice

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Emerson Electric in Focus

Based in St. Louis, Emerson Electric (EMR) is in the Industrial Products sector, and so far this year, shares have seen a price change of 17.93%. The maker of process controls systems, valves and analytical instruments is currently shelling out a dividend of $0.5 per share, with a dividend yield of 2.13%. This compares to the Manufacturing - Electronics industry's yield of 0.46% and the S&P 500's yield of 1.35%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.02 is up 1% from last year. In the past five-year period, Emerson Electric has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.31%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Emerson Electric's current payout ratio is 55%. This means it paid out 55% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for EMR for this fiscal year. The Zacks Consensus Estimate for 2021 is $3.93 per share, representing a year-over-year earnings growth rate of 13.58%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that EMR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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