Just Four Days Till Emerson Electric Co. (NYSE:EMR) Will Be Trading Ex-Dividend

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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Emerson Electric Co. (NYSE:EMR) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. In other words, investors can purchase Emerson Electric's shares before the 15th of August in order to be eligible for the dividend, which will be paid on the 10th of September.

The company's next dividend payment will be US$0.5275 per share, and in the last 12 months, the company paid a total of US$2.11 per share. Based on the last year's worth of payments, Emerson Electric stock has a trailing yield of around 1.6% on the current share price of US$132.74. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Emerson Electric has been able to grow its dividends, or if the dividend might be cut.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Emerson Electric paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 44% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Check out our latest analysis for Emerson Electric

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Emerson Electric's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Emerson Electric has lifted its dividend by approximately 1.2% a year on average.

The Bottom Line

Should investors buy Emerson Electric for the upcoming dividend? It's unfortunate that earnings per share have not grown, and we'd note that Emerson Electric is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. Overall, it's hard to get excited about Emerson Electric from a dividend perspective.

In light of that, while Emerson Electric has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for Emerson Electric you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.