Every bull market in Wall Street history has been followed by a bear market that eventually gives way to the next bull market. And every economic expansion has been followed by a contraction that sets up the next expansion. Human nature dictates the timing of these often extreme swings.
If you can handle a little uncertainty, buying great companies during the down times can lead to strong long-term results when the up times resume. Given this advice, one stock you might want to consider today is industrial giant Emerson Electric (EMR 2.35%). Here’s why.
Emerson Electric has proven itself through the cycle
Industrial companies generally sell products to other companies, so recessions can be tough for business. However, some industrials have proven that they can ride the cycle while continuing to reward investors for sticking around. Emerson Electric, for example, has increased its dividend annually for 65 consecutive years. That makes the company a highly elite Dividend King.
To be fair, the dividend growth rate has been slow and steady in the low-to-mid single digits over the past decade, but that’s not the point. The real takeaway here is that income investors have been rewarded with a consistent and slowly growing quarterly payout despite the fact that Emerson’s financial performance rises and falls at regular intervals. If you are looking for a foundational investment for a dividend-focused retirement portfolio, this industrial name has proven it can be relied on.
Doing better than the sector overall
The industrial sector, using Vanguard Industrials ETF as a proxy, is off around 15.7% so far in 2022. Emerson stock is down about 9.1%. Both declines are following the downward direction of the broader S&P 500 Index. Essentially, investors are in a dour mood, having pushed equities into a bear market, and Emerson is being dragged along for the ride. That’s just par for the course, but it could be an opportunity for long-term income investors.
Emerson Electric’s earnings were not so bad in Q2
Here’s the thing: Emerson’s fiscal second-quarter 2022 adjusted earnings were higher by 21%. Underlying sales were up 10%. And management increased its full-year fiscal 2022 outlook. Even if there are increasing cost pressures thanks to rising inflation and ongoing supply chain issues, this is not exactly a company that is struggling to survive.
There’s a risk that supply chain issues and rising costs will get worse in the near term. But, over the long term, these headwinds are likely to be transitory and not permanent. Emerson is highly likely to muddle through to better days without too much trouble.
Emerson has good lines of business when tough times are tough
A key piece of the story here is that Emerson is focused on two main businesses. The first is automation, which is basically about helping companies cut costs. Saving money never goes out of style and, in fact, becomes even more important during periods of inflation and economic weakness.
The other business line is broadly defined as commercial and residential, which includes products running from heating and ventilation to tools and parts. This business is tied to new construction and redevelopment, which is likely to see more variability with economic activity. However, the things Emerson sells on this side of the business are necessities and have strong long-term demand, even if short-term variations can be unsettling. So there’s no reason to worry too much about the company’s long-term business focus.
Emerson’s dividend pays a fair yield
Emerson’s strong industry position and great dividend history are well known. The stock doesn’t go on sale very often. In fact, for long-term income investors, it might be best to step in when the price appears fair and then add more when, on rare occasions, the price really drops hard. Right now, the stock’s roughly 2.5% dividend yield is about in the middle of the company’s long-term yield range. That suggests that Emerson is fairly valued and worth a look for a long-term commitment.
For value-oriented investors, a yield of 3% or more would be compelling. If you buy today, meanwhile, a yield over 3% would signal a good time to add to your holdings.
Buy and hold Emerson Electric
It is almost impossible to perfectly time a stock purchase — being almost right is a far better outcome than being absolutely wrong. Emerson Electric is a historically well-run company that has a reliable dividend. The stock is down notably this year, along with the market, even though it continues to perform reasonably well. If you are looking for a cornerstone industrial investment, you might want to step in now, understanding you might be early. If there is a recession and the stock falls further, buy more Emerson and average down while you enjoy the reliable, long-term passive income stream you are creating.