Emerson Electric (NYSE:EMR) Is Increasing Its Dividend To $0.525

Emerson Electric Co.'s (NYSE:EMR) dividend will be increasing from last year's payment of the same period to $0.525 on 11th of December. This makes the dividend yield about the same as the industry average at 2.5%.

View our latest analysis for Emerson Electric

Emerson Electric's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last payment was quite easily covered by earnings, but it made up 438% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 43.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Emerson Electric Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from $1.64 total annually to $2.10. This implies that the company grew its distributions at a yearly rate of about 2.5% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Although it's important to note that Emerson Electric's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.5% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Emerson Electric's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Emerson Electric's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Emerson Electric that you should be aware of before investing. Is Emerson Electric not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.