A detailed quantitative analysis by Emerson Electric Co. (EMR) is linked here. Below are some highlights from the analysis linked above:
Company description: Emerson Electric Co. develops and supplies product technology and provides engineering services and solutions to a variety of industrial, commercial and consumer markets around the world.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
EMR trades at a premium to all four of the above ratings. Since the physical book value of EMR is not meaningful, a Graham number cannot be calculated. Including the NPV MMA differential, the stock is trading at a premium of 88.0% over the calculated fair value of $ 45.4. EMR has not received any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
EMR earned a star for 1.) above in this section. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the last 10 years. The company has paid a cash dividend to shareholders every year since 1947 and has increased its dividend payments for 65 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The negative NPV MMA Diff. means that on an NPV basis, the dividend income from an investment in EMR is less than a similar amount invested in MMA, which has a 20 year average rate of 2.74%. If EMR increases its dividend to 1.0% per year, it will never match an MMA that gives an estimated 20-year average rate of 2.74%.
Peers: The company’s peer group includes: Espey Manufacturing & Electronics Corp. (ESP) with a yield of 5.1%, ABB Ltd. (ABB) with a yield of 2.8% and Regal Beloit Corporation (RBC) with a yield of 0.9%.
Conclusion: EMR didn’t earn any stars in Fair Value, earned one star in Dividend Analytical Data, and didn’t earn any stars for a total of one star in Dividend Income vs. MMA. This classifies EMR quantitatively as 1-star Very weak Camp.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to fall to $ 49.15 before EMR’s NPV MMA differential rose to the minimum of $ 500 that I’m looking for on a stock with 65 years of consecutive dividend increases. At that price, the stock would return 4.1%.
Resetting the D4L-PreScreen.xls The dividend growth rate model and solution required to generate the targeted MMA differential of $ 500. The calculated rate is 6.7%. This dividend growth rate is higher than the 1.0% used in this analysis, so there is no margin of safety. EMR has one Risk assessment of 1.75, which it classifies as a medium risk stock.
EMR has a broad portfolio of industrial companies with a strong competitive position. The company has a reputation for providing consistent returns to its investors. Company benefits include global brand platforms and new products in the pipeline. The free cash flow payout of 42% (versus 58%) is well below my maximum acceptable level, and the debt versus total capital of 48% (versus 31%) is slightly above my preferred maximum. The stock is currently trading above my calculated fair value price of $ 45.40, so I’ll wait for a more favorable time before building my position significantly.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks they should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I’ve been in EMR (2.5% of my dividend growth portfolio) for a long time.
On the subject of matching items:
– Analysis of dividend stocks of WW Grainger, Inc. (GWW)