Go To

5 Reasons To Buy Emerson Electric

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both of things together will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth. But most only think of investing well. 

Today, I want to show you something to consider buying in 5 Reasons To Buy Dividend King Emerson Electric.

Emerson Electric (EMR) is an industrial conglomerate that operates two major businesses.

  • Automation Solutions.
  • Commercial And Residential Solutions.

In the automation solutions segment Emerson sells HVAC and refrigeration products and services.  And it also produces products for the Industrial Internet of Things.

And in the commercial and residential solutions segment it sells household brands like Copeland, InSinkErator, and RIDGID.

Both segments create valves, controllers, compressors, sensors, mounts, and other necessary parts for machines and solutions.

Here’s a picture of some of their products so you can get a better idea of the things they sell.

And here’s a partial list of some of the industries Emerson sells products and services to.

  • Oil & Gas
  • Chemical
  • Food & Beverage
  • Power
  • Water and wastewater
  • Mining
  • Paper manufacturing
  • Marine
  • Medical
  • Packaging
  • Electronics
  • Aerospace and Defense

 And on and on.

In other words, Emerson produces and sells necessary parts, products, and services to a huge range of industries so those jobs and machines function properly.

Without a company like Emerson many products we use every day wouldn’t work.

Think of air conditioning as one of those – AKA HVAC.

Based in St. Louis Missouri, Emerson is a $38.8 billion market cap Dividend King that pays a 3.2% dividend.

This is reason #1 to buy EMR to help your retirement portfolio in this time of crisis… It’s dividend.

EMR’s 3.4% Dividend

Over the last decade EMR’s paid out a total of $17.28 per share in dividends.

At today’s share count of 615 million shares, that’s equal to $10.63 billion paid out to shareholders in the last decade.

Plus, the dividends increased in the last 10 years from $1.34 per share to $1.98 per share as of this writing.  This is a total increase of 47.8% or an average increase of 4.8% per year.

And you should expect this to continue because Emerson is a Dividend King.

These rare companies meet the following criteria…

  • They’re a member of the S&P 500
  • They’ve increased their dividend for 50 consecutive years.

As of this writing there are only 29 Dividend Kings on Earth.  And Emerson is one of them.

This means you should expect Emerson to not only continue paying its dividend during this crisis.  But also, that it will continue increasing its dividend.

And it did so on June 10th, 2020 when it raised the dividend to $1.98 per share.

That increase now makes it 63 straight years Emerson has not only paid a dividend but raised it.

These dividend payments will help you earn cash if you take the money out.  Or by allowing you to buy more shares over time if you reinvest the dividends.

Both help you earn higher returns over time and will especially help during any prolonged economic issues like we’re dealing with today.

It can pay these ever-increasing dividends because it earns huge profits.  Which is reason #2 to buy EMR.

EMR’s Huge Profits

Over the last decade it earned an average operating income margin of 16.9% per year on average.

I look for anything above 10% on a consistent basis so EMR well surpasses this number.

Why 10%?

Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operating profit margins above 10%.

This makes EMR a great operating business.

But it also means the company earns enough money from its operations to continue investing in the business for growth… Without having to issue debt or equity.

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 11.8% per year.

This is enormous.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.

If companies consistently earn above 5% on this number, it makes the company a cash machine that spits out more and more cash from its operations.

EMR earns enormous profits that make it an incredibly safe investment.

These profits also allow it to continually reinvest in operations.  And to pay you a large and continually growing dividend as well.

The enormous operating profits and cash flow allow growing dividend payments over time make EMR a safe income play for your retirement portfolio in whatever is to come in the next few months or years.

But these profits also allow another layer of safety in the amount of debt the company has which is reason #3. 

EMR’s Low Debt Levels

With EMR being a multibillion company, you’d expect it to have debt.

And it does…  But its debt levels are extremely low compared to its profits and the equity in the company.  This makes EMR an even safer investment.

As of this writing its debt/equity ratio is 0.53.  I look to invest in companies with numbers below 1 on this metric.

Why?

Because the lower debt levels the company has means the lower chance it has of going bankrupt.  And this makes it a safer investment.

Generally, the more profits and cash flow the company produces the higher its debt levels can be without becoming problematic.

This gives the company a ton of options in how to run and grow the business.  Which further allows the company to work in creative ways to continue growing revenue, profits, and cash flows.

Another reason to consider buying Emerson is because of its lack of being affected by the coronavirus which is reason #4.

The Coronavirus Won’t Harm Emerson

Something people won’t stop paying for are necessary things to run their businesses or their homes.

In Emerson’s case things that run air conditioners and heating units in homes, refrigerators, freezers, etc.

They may stop paying their mortgages.

They may stop paying their credit card bills.

And they may stop paying for their vehicle loans.

But they won’t stop to fix these things unless necessary

This was proved out on August 4th, 2020 when Emerson released its most recent quarterly data where only fell 16% in the year to year quarterly period.

Gross margins only fell by 1.4%.

Cash flow increased by 2.9%.

And it’s only expecting sales to drop between 9% or 10% for the full year 2020.

This when many other companies’ businesses are coming to complete stops.

Because EMR’s sells products and services in necessary industries its performance will hold up well during this pandemic.  Even if it lasts for years.

This gives enormous stability to EMR in these highly uncertain times.  And it also means you should expect it to continue earning enormous profits and cash flows.

This means you should expect the large dividend payments to continue as well.

But what about its valuation?  Is it cheap? 

EMR Is Also Cheap

This is reason#5…

With the markets at or near all-time highs you’d expect a fantastic stock like EMR to be selling at an enormous valuation.

But it’s not.

As of this writing its P/E is 17.7.

Its P/CF is 12.1.

And its Forward P/E is 19.2.

On all these metrics I look to buy investments below 20 to consider them for investment.

And EMR’s current valuations falls below 20 which puts it into the cheap valuation category.

This means EMR stock offers you a margin of safety in investing terminology.

A margin of safety means you’re buying a safe investment… And this makes the investment even less risky.

Conclusion

If you’re looking for a solid, safe, stable, dividend paying, cheap, and enormously profitable investment to buy and earn income in your retirement portfolio – consider investing in Emerson Electric for the 5 reasons above.

Click the links below to learn about other investments we recommend during this crisis too.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.


You Might Like

Comments are closed.