Recently Emerson Electric Co. (EMR) has been a company that has caught my eye. Emerson Electric Co. is a world leader in the design, manufacture, and sale of electrical, electromechanical, and electronic products. The company is comprised of five units: Process Management, Climate Technologies, Network Power, Industrial Automation and Tools and Storage. Emerson was founded in 1890 and is based in St. Louis, Missouri.
Emerson Electric has been increasing their dividend annually since 1957, that is 59 years of dividend increases. The company has an annual dividend payout of $1.90, which is $0.475 per share. The last closing price on the market was $51.17, which will give you a 3.75% dividend yield.
Emerson is currently trading at the lower end of its historical price to sales ratio. A low price to sales ratio is a solid indicator of fair value. With the company currently trading at around 17% off its 52 week highs, it seems to me to be a pretty good time to start a position in this dividend aristocrat. In the second quarter the company generated $617 million in free cash flow and paid out only $306 million in dividends, which gives them a FCF payout ratio of 49% for the second quarter.
In the Process Management business, the company lists oil and gas, chemical and refining as being some of the industries served. These industries have been greatly affected by low oil prices and low commodity prices. I like trying to find companies that will greatly benefit from improvements in industries that they work in. Emerson Electric can not control what happens to the price of oil but when it pulls their sales numbers down quite often it adds to a pullback in the cost in the share price which provides a great buying opportunity.
Emerson Electric is a highly cyclical company that has saw a $700 million revenue decline year over year. A good reference for cyclical companies is a 10 year period, so that it accounts for a business cycle. It appears to me that during this business cycle Emerson has peaked, so I am looking to acquire shares now and reap the benefits later when they are in an improving business cycle.
With all things considered I think Emerson Electric will be a good addition to my holdings at this point. I think there may be opportunities later to strengthen the position if the market continues to pull the price down but I think right now is still a good time to open the position. It is a great company with a very impressive record of raising dividends. It will be a great long term investment to help build my snowball even more!
I look forward to any questions or comments!