Investing in a dividend king isn’t just about earning a dividend.
Emerson Electric’s pivot towards growth continues
Lee Samaha (Emerson Electric): The industrial company has increased its dividend for the last 65 years. That’s excellent news for income-seeking investors. It’s also good news for growth investors too. It’s not often discussed that being able to grow your dividend implies having the ability to grow the earnings and cash flow to fund the increase.
The company’s current dividend yield of 2% is well and fine, but it’s the key reason investors are holding the stock. Instead, management’s plan to pivot the company towards automation and adjacent markets has caught the eye. Its stated aim is to “Become a Pure-Play Global Automation Company Serving Diversified End Markets,” management took a big step in that direction by selling its majority share in its climate technologies business in 2023.
That deal followed Emerson’s deal in 2022 to combine its industrial software business with AspenTech to create a new AspenTech, of which Emerson owns 55%.
The dealmaking continued in 2023 with the successful acquisition of software-connected automated test and measurement systems company NI in October. As previously discussed, the timing of the acquisition may prove opportune as the semiconductor and consumer electronics industries are expected to pass a trough in 2024.
Thinking longer-term, Emerson’s focus on automation makes it ideally placed to benefit from powerful reshoring trends in the U.S. economy and the drive towards using automation to enhance productivity in general.
There may be better value automation-focused stocks out there. Still, they tend to be foreign, and investors who don’t want to worry about exchange rate movements will prefer Emerson Electric for its combination of dividends and growth.
