Are You Looking for a High-Growth Dividend Stock?

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Emerson Electric in Focus

Emerson Electric (EMR) is headquartered in St. Louis, and is in the Industrial Products sector. The stock has seen a price change of -19.66% since the start of the year. The maker of process controls systems, valves and analytical instruments is paying out a dividend of $0.53 per share at the moment, with a dividend yield of 2.12% compared to the Manufacturing - Electronics industry's yield of 0.62% and the S&P 500's yield of 1.69%.

Looking at dividend growth, the company's current annualized dividend of $2.11 is up 0.5% from last year. Emerson Electric has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 1.19%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Emerson Electric's payout ratio is 37%, which means it paid out 37% of its trailing 12-month EPS as dividend.

EMR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $5.93 per share, with earnings expected to increase 8.01% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, EMR is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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This article originally published on Zacks Investment Research (zacks.com).

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