I have been compiling some cash recently and had enough to establish a great entry-level position in a company. Over the last few months, there have been many events impacting the market and pushing the price of some great companies lower and lower. So I wanted to make this purchase count and pick up a rock-solid dividend paying stock, one that I now think should be included on Lanny’s infamous foundation stock listing. Unfortunately, the title gave it away. See why I decided to invest in Emerson Electric this week.
In all honesty, if you follow our website and read our last article, this purchase should not be a surprise. On Sunday, I ran Emerson Electric through our stock screener and the results blew me away. I won’t go into too much detail in this article since my stock analysis was just released and there have not been any significant changes to the stock in the last couple of days. However, here are some of the main reasons I purchased Emerson Electric:
- Management’s commitment to providing great, increasing returns to shareholders since the CEO took over in the early 2000s.
- Emerson Electric is Dividend Aristocrat and has increased their dividend for 41 consecutive years. Plus, the average dividend growth rate over the last 5 years is 7.12%.
- The forward payout ratio is below 60%, so management has the room to sustain a high single digit dividend growth rate for the foreseeable future if the forward earnings estimates are reasonably accurate.
- The stock has had a dismal 2015 and was down ~14% YTD at the time of my purchase. Due to the performance, the company’s PE Ratio of ~14X is significantly lower than the broader market and several rivals in the industry and their current dividend yield has climbed above 3.5%.
- While this is not a sole reason to purchase a stock, a lot of the reaction from the dividend growth community indicated the stock was a core holding in their portfolio. It is great to see that so many others share the same sentiment about the company. Thank you for your comments Dividend Mantra, Stalfare, and Div4Son!
Based on my analysis I was sold on the company and wanted to become a shareholder. Even though IBM just had a tough quarter, I decided to pass on increasing my position in Big Blue for this Dividend Aristocrat. Luckily for me, I had a free automatic trade in my Sharebuilder (Now Capital One Investing) account that allowed me to purchase the stock on Tuesday commission-free. Talk about a nice little birthday present from your broker! Using this free trade, I purchased 38.2215 shares of Emerson Electric at $52.06/share, adding $71.86 in projected forward dividend income to my portfolio.
This purchase also brings me a lot closer to achieving a few of my investing goals for 2015. First, I used “fresh” capital for this purchase, meaning the funds were transferred in directly from my checking account and were not from selling a stock or an 401k contribution. After this purchase, my total purchases from “fresh” capital in 2015 are $10,771, or 72% of my goal of $15,000 by 12/31/15. Second, this purchase increases my forward dividend income to $2,250, or 81.8% of my goal of $2,750 by 12/31/15. My last investing goal is to max-out my Roth IRA before the end of the year. However, this goal was not impacted by this transaction as I made this purchase in my regular brokerage account. Since EMR’s yield is below 4%, I wanted to save my final Roth IRA purchase (or two purchases) for high yielding stocks such as Realty Income, KMI, etc., which were on my last watch list. To me, the higher the yield in my Roth the better to maximize the tax-free benefits our wonderful tax code provides us with. This purchase helped me make some great progress towards knocking our my goals out and for once, I may actually be ahead of the game! No complaints here.
What do you think of the purchase? Would you have purchased Emerson Electric? Or would you have purchased one of the major tech companies that decreased today (Apple, IBM, Microsoft, etc.)? Would you have made this purchase in your regular account or Roth IRA?
-Bert
Great purchase, Bert. Emerson has stood out amongst industrial stocks lately and for good reason. The history and the track record make it a fantastic company to own in any portfolio. I have been reading up on EMR and really like what I see there.
Congrats on adding thsi company to your portfolio.
Best wishes
R2R
Thanks R2R. They kept popping up on my screener so I figured I should dive into the company further. Once I pulled the lid off, I loved what I was seeing. The commitment to growing their dividend and rewarding shareholders is impressive and they haven’t sacrificed too large of a percent of their earnings in the process (as the payout ratio is sub-60%). I am always a fan of companies that dominate their industry as well, and EMR is just that. Couldn’t be happier to add this company to my portfolio!
Thanks for stopping by.
Bert
Love the purchase. Just added more EMR myself.
D4s
D4S,
Glad you jumped on the purchase wagon this week, although I believe you are adding more to your position, correct? Great pick up and way to take advantage of the recent downturn. When the cycle begins to turn in the other direction and the stock price appreciates, we will be thanking ourselves for the investment!
Thanks for stopping by.
Bert
Nice pick-up! EMR has been on my watchlist for several months now, my initial price to buy in was $55 but now that it has moved even lower I am building up a bit more cash before I buy in. I look forward to becoming a fellow shareholder!
Best,
Dividend Odyssey
Dividend Odyssey,
Thank you very much. I am pumped for you to join the club as well. EMR blew past your initial entry point, so hopefully the purchase is sooner rather than later. Have you thought about making several purchases so you know that you can at least lock in an investment at the current levels? Then, if the price continues to fall you can continue to reduce your cost basis. If the price increases, at least you know you caught the current dip at some point. Just wanted to throw the idea out there.
Thanks for stopping by. Have a great evening!
Bert
Good buy Bert.
I’m thinking of doing the same in 2-3 weeks. Hope the price keeps falling in the meantime!
Thanks Broke Dividend Investor. I’m pulling for you and hopefully the price continues to fall. Hopefully you are able to jump on the ship as well before the price appreciates (if it does). Heck, even if EMR increases 5% over the next few weeks it’ll still be trading at a steep discount compared to the market. Still a win-win unless the company shoots up 15%-20%!
Best of luck. Hopefully we will be fellow shareholders soon. Thanks for stopping by!
Bert
I really like this purchase. I am looking to average down on this company whenever I have the capital and they are the best opportunity at the time. I am down around 8% on the name from when I first invested and if I like them up there, I’d like them about 8% better right now! Nice pick up! The company should be fine in the long run and that is what its all about.
ADD
ADD,
Thank you! 8% better haha That’s a great mindset and rule of thumb. Lanny and I typically use a 5% loss threshold to re-purchase a stock. If you liked it at a higher price, then why not purchase it if it continues to fall. Especially if the company has great fundamentals and is a rock solid dividend growth company. As you put it, they and almost every other large dividend growth company will be great in the long run, so why not take advantage of a short-term pullback.
Keep us updated with your purchase. Hopefully hat capital can transfer in ASAP so you can make the purchase and get it over with! Have a great evening.
Bert
Awesome purchase Bert. You’ll doing wonderful bud. Every purchase feels so good it’s addicting in a great way. You’ll building this empire and fortress one brick at a time. Slow and surely, you’ll crush this goal easily. No doubt about it. Keep up the hustle and always a pleasure stopping by. Keep on posting and sharing with us. Thank you for the support. Cheers my friend.
Hustler!!
Thanks for stopping by and I appreciate the kind words and support. You are exactly right, investing is extremely addicting. Once I make a purchase, I am already looking ahead to the next great investment. I sometimes wish that I just had unlimited cash or received a large lump sum so I constantly purchase stocks. So maybe I’ll spend a dollar and buy a lottery ticket and hope for the best haha But part of the fun is trying to save up enough money/scraping every dollar together so I can get the most out of each purchase. It is very rewarding.
I won’t stop hustling until I reach financial freedom my friend. We are all making some great progress towards the same end goal. Let’s keep at it and keep on hustling and grinding!
Bert
Good buy! I will wait to be back home (now I am abroad) to add some myself 🙂 I wonder if the drop was also given by the strong dollar this semester, surely it must have had some impact… Anyhow in a market that offers little space for a bargain this could be one for sure!
Thanks Stalfare! Where are you traveling abroad to? How long is your trip for? I’m sure the dollar and the global economy has something to do with their decline, but in the long run I really am not concerned. I was excited to take advantage of this opportunity while the market threw the door wide open, so hopefully you will be able to as well!
Bert
Bert,
Can’t argue with your logic here. Decided today to add to my position in EMR for the first time in a long time. Glad to have you on board. Great yield, great valuation, and a spin-off. Headwinds for sure, but just about every company out there is facing headwinds of some kind.
Best regards!
Thanks DM. Congrats on the purchase! I believe you said EMR was one of your original holdings, correct? So I am PUMPED that you decided to add to your position. I like you comment that every company is facing headwinds. You would be pressed to find many companies that haven’t had some sort of pullback during the year (Please don’t bring up SBUX haha). The point of our stock screeners are to find potentially undervalued great dividend growth stocks and when a great company becomes discounted, we pounce on the opportunity. I’ll live withthe short-term headwinds if it meant I purchased a great company on sale.
Congrats again on the big purchase today! It seems like you have been purchasing one stock per day haha
Bert
Great buy with EMR. It’s been with me for almost 8 years and I own it in my taxable and ROTH account and I bought some for baby DivHut too. What does that tell you about what I think of the stock? Still, after it’s major decline in recent weeks EMR is look especially enticing with their dividend yield. Buy when others are selling, right? Nice pick up. Thanks for sharing.
Thank you DivHut! I’m glad I was able to purchase a stock that you think so highly of. As ridiculous as it sounds, as I worked on my stock analysis article I fell in love with the stock. Basically, I determined that I was purchasing the stock ASAP regardless of what happened with the price the next day. I began to value the company that much.
As you said. Buy low and if the price keeps getting lower…keep on buying! Thanks for stopping by.
Bert
Hi, nice buy. EMR is on my top scorers list. I wish I had capital to deploy, as I’d love to initiate a position in EMR. Instead I added to my financials by adding to my RY position yesterday.
Are you worried about the general market down turn, or bubble bursting soon ? Maybe hold off buying for a while, or do you plan to keep adding now that prices are attractive ?
Thanks, and keep the ideas coming.
Thanks ActivePassive Money! Lanny and I talk nearly everyday about how nice it would be if we could just have $10k to spread around into the market, especially during weeks like this where every day prices seem to continue to decrease. Unfortunately for us, that is not the case and we have to pick and choose based on which stock we perceive as the best value or the best fit to our portfolio. Nice job adding to your stake in RY, Canadian Banks have had quite a pullback recently and I am considering adding to my position in Canadian Imperial with my next round of capital.
To answer your question, no. I see downturns as a tremendous opportunity to add great long-term companies at a discount. If anything, I always hope for weeks like this so I can add another great company to my portfolio. With that being said, I don’t try to time the market and hold off on purchasing until I think the stock is at its lowest price. I can’t control what the next day brings and if I wait I run the risk that stock price could suddenly swing up and I miss the opportunity. So I will buy when I am confident the stock is trading at a discount and I like the long term prospects of the company. If the price continues to fall…even better. I will continue to purchase and reduce my cost basis. That is what I have done with NSC recently. I purchased the stock 3 times over the last 3 months since the price continues to fall. Heck, I may even purchase the stock a 4th time if I have the capital. Hopefully that answers your question!
Thanks for stopping by!
Bert