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