Well.. the market keeps saying- buy me, buy me, and there are opportune stocks everywhere at the moment, in my book. I took advantage of a recent price slide on a stock that many have been purchasing over the last month, including the one and only – Bert. I took a page out of his book and couldn’t be more thankful that he founded them in his screener and made my life a little easier. Thanks again Bert for doing that, I appreciate it. I had capital that finally was able to transfer over, now let’s see who, how much and why I bought this stock.
Recent Purchase – Emerson Electric Co. (EMR)
As I stated earlier, Bert had purchased this company a few weeks ago and also did a deep dive stock analysis before purchasing this stock. He definitely saved me a few hours and made my research fairly easy. I know I had a nice lump sum of money coming from a bonus, that I discussed in my savings rate article, which allowed me to be ready to make a purchase into a stock, since Mr. Market continues to take a turn down.
Similar to my DOW Chemical purchase in July, I did a scan of 2 competitors and added them to a quick screening spreadsheet, which you’ll see pasted below, with the focus on our stock screener and other metrics to… take a look at the numbers, let’s take a look at what these guys bring to the table:
1. Price to Earnings Ratio: Under the S&P average currently, below the US domestic competitor of Honeywell and a tad higher then Siemens. However, a 15.33 ratio to me looks under valued and for a dividend aristocrat who has increased dividends for over 58 years, that is great in my book.
2. Yield: Incredible yield, currently, at 3.79% at the time of my purchase. This is higher than the other 2 I analyzed, as well as closely resembles my own overall portfolio weighted average yield, therefore, it keeps that at a moot point, you know?
3. Payout Ratio: Just under my tolerance level,typically, of 60%. I am okay with this, given that the forward earnings are lower during the analyst review for this fiscal year of 2015, with higher earnings into 2016 projected. I believe they still have room to grow their dividend, and currently – would like a 6-7% rate if possible.
4. Dividend Growth rate: Ah, yes I do love the growth rate. The last 12 months, EMR has increased their dividend by 9.30%, which is higher than my overall portfolio currently. I don’t expect as high of a dividend growth rate going forward, given a slightly higher payout ratio, however, they traditionally do hover around 54% for a multiple year payout ratio average (5 year average actually). Honeywell had a great increase last year, but they don’t have the incredible track record that Emerson does.
5. The 5 year dividend yield average – Always a fun one to see and given the big decline this week – I was able to see this spread increase quite a bit to 79 basis points above their 5 year dividend yield average; which is another sign of undervaluation. I feel that it’s a sign moreso because the stock price traditionally in the past has always calculated a 3.00% yield and if it currently is at 3.79%… the stock price has a ways to catch back up.
I know Mantra has purchased them recently, as well as my buddy Bert. Look who got them a tad less baby!!!! All kidding and it’s a funny little jab at you guys, all jokes that I hope you take as one. I am pumped to be a fellow shareholder with you guys… I also have to Thank you again Mr. Market for taking that downturn for me, always open to that move that you make!
Stock Purchase Summary
I deployed a total capital amount of $1,993.35, buying 40 shares (with commission) of EMR and added $75.20 to my forward looking dividend income. With the power of dividend reinvestment – these dividends should almost provide 1.5 shares per year will be added, given that the dividend stays, at a minimum, stagnant. Adding $75.20 to my annual goal breaks down to an extra, approximately, $6.27 per month that I will start to see the benefits in the 3rd quarter dividend (September). As I said earlier, this purchase also allows me to reach closer and closer to my goals for 2015.
What does everyone think of the purchase? Think that it was a good timed purchase? Would you consider this stock or adding to your position? Think there is value here? Would love to see everyone’s stand point, thank you!
-Lanny