Saturday, August 8, 2015

Recent Buy III

Dividend Growth Stock Blog


If you follow my blog, EMR appeared on my August Screen.




The screen essentially looks for companies that have their PEs below their median PE and yield above their median yields. Moreover, in this month my focus is on companies with wide moat.


Emerson Electric Company ( EMR) makes air-conditioning units, refrigerators and motors for both commercial and consumer use. 

It also provides manufacturing equipment and services for pharmaceuticals processing plants. The company is facing some tough headwinds. The recent quarter sales declined 13% to $5.5 billion compared to analyst estimates for $5.63 billion. Third-quarter EPS of $0.84 compared to analyst estimates for $0.83.
They are being affected by the the lower energy prices that have hit sales of oil/gas related key Process Management segment, the strong US dollar vs the rest of the world and the weakness in emerging markets infrastructural spending.
They have sold off their power transmission solutions to Regal Beloit Corporation.
From a short term perspective, all of this is affecting the stock price.
From a long term perspective, it’s a cyclical company in one of its down cycles. As long as EMR maintains its dividends (and even grow it) for the next decade or so, we should be okay as dividend growth investors.
From looking at my criteria list, I believe their dividends are still safe - with a low dividend payout. Their dividends history is also a good indication that management will continue to grow future dividends. 
I’ve updated the criteria table with the new information - mostly from M* and S&PCapital IQ - where they’ve lowered the fair price estimate to $62 & $64 respectively.


EMR 8/2015
Area
Criteria
CheckList
Comment
Quality Company
Dividend Growth
>5 years
Yes
58 Years
ROE/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes - revenue and eps flat 2010
Stable
FCF over Dividends
Yes
Yes
Stable
M* Moat
Wide Moat
Yes
Wide
M* & S&P
Credit Rating
> BBB+
Yes
A+
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
Yes - but TTM Debt/Equity >0.5, (Ten Yrs Debt/Equity <0.5 on average)
Cash to Debt 0.45
Interest Coverage 19.28
Debt to Equity 73.93
M* & S&P Stars
> 3 Stars for both
Yes
M* 4 Stars
S&P CapIQ 3 Stars A+ Quality
Payout Ratio
<60%
Yes
47.00%
Dividend Growth
& Yield
Dividend Yield
>3%
Yes
3.70%
Dividend Growth
>5%
Yes
5.80%
Chowder
>12%
No
9.50%
Valuation
Yield/Avg Yield
>1.1
Yes
1.28
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 65.72
Low Point 40
P/E
Below Mid Point
Yes
Median 18.90 Current 13.03
DRRM
~10%
Yes
Assuming 6% growth; projected return=11.89%
M* Estimate
<M* est
Yes
M* 62
S&P Estimate
< S&P cap IQ est
Yes
S&P Cap IQ 64


Transaction Details


Security
Price
Quantity
Amount
EMR
49.62
30
1495.55


This will add an estimated $56.40 forward dividends per year.


Did you make any recent buys? What do you think of EMR?

D4s

8 comments:

  1. Just missed my weekly summary list. Sorry about that. I think I have seen enough though, I'm transferring some money and will be buying EMR next week. Thanks for your full analysis and update here!

    ReplyDelete
    Replies
    1. Adam, thanks for visiting. I think EMR will definitely have some short term volatility and the price can dip further. However, long term wise, I think they are okay. The industrials and conglomerates seem to be hit hard recently.
      D4s

      Delete
  2. Div4Son,

    Nice pick up! Looks like you bought them 4 cents cheaper than I did - cmon man! Joking, this is awesome and am glad you were able to purchase them below $50 - such a great price and the value is truly there. Congratulations.

    -Lanny

    ReplyDelete
    Replies
    1. Lanny, I have a crystal ball that tells me to buy at exactly 4c below you. :)
      Glad to be a fellow shareholder. Hope to add more if they drop more.
      D4s

      Delete
  3. Nice purchase, Div4Son. EMR is really attractive at these levels - great time to load up. Congrats on adding to your portfolio.

    cheers
    R2R

    ReplyDelete
    Replies
    1. R2R,
      Thanks for your comments. From my PE and Yield plots, we're still not at the bottom. So, the price can potentially drop. I have room for one more average down.
      D4s

      Delete
  4. EMR is also on my August potential buy list. No doubt many industrial names are facing some near term headwinds. Seems like a good time to nibble on the sector as yield is becoming very attractive along with better valuations.

    ReplyDelete
    Replies
    1. Thanks Divhut.
      I see EMR and the other industrials are distressed. I think the lower oil prices, strong dollar and the global slow economies are having an effect on these sectors. Short term, we will see large drops in prices as the earnings are eroded. Long term, this is a good time to load up on the tier 1 companies.
      D4s

      Delete