We recently compiled a list of 10 Best Dividend Aristocrats According to Wall Street Analysts. In this article we are going to take a look at where Emerson Electric Co. (NYSE:EMR) stands against the other dividend aristocrats.

Shifts in investment trends have revealed new insights for investors in recent years. Certain times call for specific investments, and it’s often experienced investors who can spot these opportunities. However, it’s clear that the value of a good investment remains steady, even amidst ongoing changes. This is where the long-standing dividend aristocrats play a role. These companies are strong dividend payers, having raised their payouts for at least 25 consecutive years.

The extended periods of dividend increases have significantly boosted the impressive returns of these stocks over time. Since its inception in 2005, the Dividend Aristocrats Index has outperformed the broader market with lower volatility, according to a report by ProShares. In addition, these stocks demonstrated strong performance in all market conditions, capturing 90% of market gains while only experiencing 82% of market declines. Also read: 10 Best Dividend Aristocrats with Over 3% Yield.

Achieving 25 consecutive years of dividend growth is quite an accomplishment. Out of approximately 6,000 stocks listed on the NYSE and Nasdaq, only 67 are part of the prestigious Dividend Aristocrats index in 2024. This highlights that only a small number of companies have reached this milestone. Maintaining a record of annual dividend increases for 25 years means the company has managed to boost shareholder payouts through various challenges, including the dot-com bubble, the 2007 financial crisis, and the pandemic. This reflects a robust business model, strong cash flow visibility, and disciplined management of capital. Even dividend aristocrats can struggle with consistency, as we’ve seen recently. Companies like Walgreens and 3M were unable to sustain their decades-long dividend growth streaks and have been removed from the Dividend Aristocrats club this year. This highlights the importance of financial strength for dividend aristocrats. The Great Financial Crisis exposed the financial vulnerabilities of these dividend-growers, as 17 out of the 60 Aristocrats in the S&P 500 were removed in 2008 and 2009.

As mentioned before, dividend aristocrats have consistently outperformed the broader market since their inception, even during market downturns. Don Kilbride, a senior managing director and portfolio manager at Wellington Management, has noted this performance, particularly with the Vanguard Dividend Growth fund, which he manages. This fund focuses on companies that have reliably increased their dividends annually, some for decades. During the 2008 market crash, while the market fell 37%, Vanguard Dividend Growth only lost about two-thirds of that amount, thanks to its dividend-generating stocks. As the market recovered, the fund quickly made up for its losses, outperforming many of its peers. Kilbride further mentioned that dividend growth is crucial for weathering tough markets and achieving long-term success, stating that its benefits are substantial and enduring.

According to analysts, for those building their portfolios, incorporating dividend investments can be beneficial, particularly if the dividends are reinvested. By using dividends to purchase additional shares each time they are received, investors create a cycle where payouts increase with the number of shares owned, leading to the ability to acquire even more shares. In this article, we will take a look at some of the best dividend aristocrat stocks according to analysts.

Our Methodology:

For our list, we first scanned a list of the best dividend aristocrat stocks, which are the companies that have raised their dividends for 25 consecutive years or more. From this group, we picked stocks with a projected upside potential of over 10% based on analyst price targets. The stocks are ranked according to their upside potential, as of August 7. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 920 funds as of Q1 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Emerson Electric Co. (NYSE:EMR)

Analyst Upside Potential as of August 7: 27.4%

Emerson Electric Co. (NYSE:EMR) ranks second on our list of the best dividend aristocrat stocks. The American multinational manufacturing company offers products and services related to commercial, industrial, and consumer markets. The company is making significant moves to streamline its portfolio and strengthen its position as a global leader in automation by finalizing an agreement to exit the Copeland business entirely. In addition, it is working to create value for its shareholders by focusing on its higher growth and higher margin automation portfolio.

Emerson Electric Co. (NYSE:EMR) is up by 8.4% in the past 12 months and the stock reached its 52-week high in July this year, when it was trading at around $119 per share. The stock is currently trading at a forward P/E multiple of roughly 17x, which makes it look a bit undervalued. We believe that the optimal time to buy this stock was in November 2023 when several insiders were purchasing shares at prices ranging from $85 to $88.

In fiscal Q3 2024, Emerson Electric Co. (NYSE:EMR) reported an operating cash flow of $1.06 billion, up from $842 million in the same period last year. Its free cash flow for the period also grew to $975 million, from $769 million in the prior-year period. The company expects to return approximately $1.2 billion to shareholders through dividends in FY24. Its current cash position also suggests strong dividend growth in the near future. The company is already maintaining a 67-year track record of consistent dividend growth, which is one of the longest streaks in the market. It offers a quarterly dividend of $0.525 per share and has a dividend yield of 2.01%, as of August 7.

Emerson Electric Co. (NYSE:EMR) was a part of 53 hedge fund portfolios at the end of Q1 2024, up from 50 in the previous quarter, according to Insider Monkey’s database. The stakes held by these hedge funds have a collective value of nearly $1.5 billion. With nearly 3.5 million shares, Adage Capital Management was the company’s leading stakeholder in Q1.

Overall EMR ranks 2nd on our list of the best dividend aristocrats to buy according to Wall Street Analysts. While we acknowledge the potential of EMR as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than EMR but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.