All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 -7.07%. The maker of process controls systems, valves and analytical instruments is currently shelling out a dividend of $0.52 per share, with a dividend yield of 2.35%. This compares to the Manufacturing - Electronics industry's yield of 1.03% and the S&P 500's yield of 1.69%.
In terms of dividend growth, the company's current annualized dividend of $2.10 is up 1% 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 1.44%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 47%. This means it paid out 47% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, EMR expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $5.16 per share, with earnings expected to increase 16.22% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 must be conscious 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 is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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