In this low interest rate environment, investors have turned to
high-yielding blue-chips as a source of retirement income. This
five-part series will outline what I believe to be the top five
aristocrat stocks, most suitable for a retiree's portfolio.
In my first article on dividend aristocrat stocks,
why the international health, hygiene and paper company giant,
, makes a great defensive play.
For my second pick, I want to turn your attention to a dividend
champion with a long history of solid growth that dates from 1892.
Originally, this company was the first to sell electric fans in the
United States. But, with surging demand during World War I, its
product line expanded to include sewing machines, drills and power
Emerson Electric (NYSE:
is one of the largest conglomerates in the United States, as
measured by its global workforce of more than 133,000 people across
more than 150 countries.
This multinational powerhouse now designs and supplies a wide range
of products and technologies for industrial, commercial and
consumer markets across the globe, including electrical appliances,
motors and power tools.
Solid revenue, dividend growth expected
In 2011, Emerson's total revenue topped $24.2 billion. Management
expects global demand to drive revenue and
higher in the coming years -- the five-year growth rate is
projected at 11.4%, better than the projected 10.5% five-year
growth of the S&P 500.
In addition to solid growth, the company offers an appealing
forward dividend yield
of about 3.1%. In comparison, the average stock on the S&P 500
yields just 1.9%.
Investors need not worry about this dividend going away anytime
soon; Emerson has been paying a dividend for 55 years straight.
The company also has a reasonable
of about 45%. The payout ratio -- calculated by comparing dividends
paid to earnings generated -- is an important metric for
forecasting dividend sustainability. In comparison, a ratio of 80%
or higher shows a company may be making dividend payouts it can't
afford for long.
What's driving emerson's growth?
Helping support Emerson's growth -- and sustained dividend -- is
the current strength in of its process management segment. Emerson
caters to clients in the growing food and beverage industry, as
well the energy sector, by
innovative products that improve efficiency through automation. For
example, Emerson was recently commissioned by one of Russia's
largest oil and gas companies to provide reliable oil rig
automation equipment to monitor year-round oil operations in rugged
conditions where temperatures dip below -47 degrees Fahrenheit.
In the coming year, Emerson expects demand for similar products to
remain strong, due to rising energy prices.
Also driving growth are two recent acquisitions that should help
the company further edge out competitors. In mid-March, Emerson
announced the strategic
power-supply-equipment company Avtron Loadbank. The acquisition
should help Emerson expand its range of power management solutions
But they weren't done. In early April, Emerson announced the
Johnson Controls' (NYSE:
marine container and boiler business unit. Although Emerson
previously offered refrigeration and cooling solutions to a variety
of residential and commercial customers, it did not have a foothold
in the transportation sector.
The acquisition should help Emerson expand its refrigeration and
into the marine transportation market since Johnson's equipment is
currently in over 650,000 marine containers. Expansion into the
marine market could be an important coup for Emerson. In 2011, 16%
of overall revenue came from sales of climate control technologies.
Through continued acquisitions and product developments, the
will likely see further expansion. Such growth could result in
future revenue, earnings and dividend increases.
A look At Emerson's chart
From a technical perspective, Emerson's chart appears strong and
may be at an important junction, providing a potentially good time
to get in on the stock.
As shown in the chart below, the stock rose steadily off the June
2009 low of $28.61 to the early January 2011 high of $62.67.
Through this rising share price, a
This uptrend line was broken -- and a
line formed -- as the stock sank to its late September 2011 low of
However, in early 2012,
bullishly rose above the downtrend line. The stock now appears to
be consolidating in the low $50 range.
There is resistance -- which can be thought of as a ceiling
temporarily capping the share price -- at this low $50 level.
However, if the stock can bullishly break through this resistance,
it would likely move higher and could even test its 2011 $62.67
high. From current levels, this would mark capital returns of
greater than 20% to add to the 3% plus forward
A fundamentally strong outlook
From a fundamental perspective, Emerson has a strong growth
On Tuesday, May 1, Emerson reported second-quarter 2012 results.
Due to increased orders for commercial and residential solutions,
revenue increased 7.2% to $5.9 billion, compared wtih the
On this strength, analysts expect full-year 2012 revenue will
increase 3.7% to $25.1 billion, up from $24.2 billion in 2011. With
continued global demand, analysts estimate 2013 revenue could rise
a further 6.7% to $26.8 billion.
The earnings picture is similar.
On strong global orders, especially for commercial and residential
earnings per share (
rose 1% to $0.74 compared with the second quarter of 2011.
For the full 2012 year, analysts project
could rise nearly 8% to $3.50, up from $3.25 in 2011. Earnings are
then expected to increase an additional 14% -- to $3.98 per share
-- by 2013.
Action to Take -->
The technical and fundamental outlook indicates that Emerson is
likely a stable long-term dividend growth opportunity. The
company has been rewarding investors for many years and should
continue to do so for many more years to come.
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority owns shares
of KMB in one or more if its real-money or investment