My October Watchlist post earlier this month mentioned that I would seek to initiate a position in a CAD industrial due to the poor CAD/USD exchange rate. Following a deeper analysis of available options including statistics for 34 global industrial equities, my screens identified EMR as the top contender in terms of adding Industrial exposure to the foundation of the Niche Fund this month.
EMR Emerson, based in St. Louis, Missouri (USA), is a global leader in bringing technology and engineering together to provide innovative solutions for customers in industrial, commercial and consumer markets around the world. The company is comprised of five business segments: Process Management, Industrial Automation, Network Power, Climate Technologies and Commercial & Residential Solutions.
For this purchase, my first screen criteria was attractive P/E ratio as compared to 5 yr average, index average and finally, screen competitors. EMR had the most attractive P/E ratio of 13.1 as compared to its 5 yr average of 20.2. The runners up in terms of discount compared to 5 year average were CAT and SIEGY.
The second screen category was payout ratio less than 55%. In this area EMR fared well, but was not the best of available competitors. EMR had a 51.1% payout ratio, which was slightly higher than 47.8% for CAT and 47.3% for SIEGY. In each case there is room to increase dividends to stockholders, however only minor differences among the top three competitors.
The third screen criteria, dividend yield, eliminated many stocks from the final short list of nine stocks. EMR again was not the top choice with a dividend yield of 3.99%, however competitors were very close with CAT slightly above at 4.03% and SIEGY slightly below at 3.84%.
Following a series of additional screening criteria, including dividend growth % over 5 years, and my own personal analysis, I decided that EMR was too good of an opportunity to pass up. As the P/E ratios favoured EMR, and the forward passive income figure was greater than the competition, I think it was hard to deny the opportunity to add $16.92 of annual USD dividend income to the Niche Fund.
After deciding on EMR as the optimal stock to buy this month in the industrial sector, I managed to secure a very modest initial position of 9 shares for $46.5 per share. This an initial industrial foundation stock holding in the Niche Fund. The honourable mentions go to: CNR, CP, GE, MMM, BA, SIEGY, and CAT.
This is an initial position in EMR, a dividend aristocrat with significant future passive income potential. What are your thoughts on industrial dividend stocks? Do you currently hold EMR or any other industrial stocks mentioned?
Disclosure: Long EMR, may initiate positions in CNR, CP, GE, MMM, BA, SIEGY, or CAT within 90 days.