I’m always willing to recommend a quality dividend grower if the price is right. Many dividend growers, though, have a shortcoming: Income and yield from the get-go list toward the low side.

If I can find dividend growth and a higher yield at the right price, my interest is piqued. With that said, my interest in Emerson Electric (NYSE: EMR) is piqued.

Emerson has been around for a while – since 1890 to be exact. It began life as an electric motor and fans manufacturer.

[ad#Google Adsense 336×280-IA]Over the years, Emerson evolved into an industrial components and services provider.

Some things continually evolve, but some things don’t.

Dividend growth has been a constant.

Emerson constantly increases its dividend.

In fact, it has increased its dividend each year for the past 59 years.

The streak puts Emerson in rarefied air, with the likes of Procter & Gamble (NYSE: PG), Exxon Mobil (NYSE: XOM) and Altria Group (NYSE: MO).

Today, investors can buy into Emerson’s dividend growth with a starting 4% yield.

A higher yield can be the product of a rising dividend payout, a lower share price, or both. With Emerson, its yield is a product of a higher payout and a lower share price. The obvious question is, why the lower share price?

Fiscal year 2015 (ended Sept. 30) was challenging. Reduced capital expenditures in the resource and energy sectors hurt results. Adverse currency movements, with the U.S. dollar appreciating strongly last year, and emerging-market weakness are other issues. Full-year sales dropped 9% and earnings per share dropped 15% compared to fiscal year 2014.

Recent performance has been unsatisfactory, so management has doubled back. Emerson is undergoing a radical change, with a focus on smart growth driving new initiatives.

In recent months, Emerson has taken $221 million in restructuring charges to remove dead wood and improve operational efficiency. It plans to take about $60 million in one-time charges over the next few months. The restructuring should produce $400 million in annual savings by the end of fiscal year 2016.

What’s more, Emerson plans to become even leaner and more efficient to start fiscal year 2017. Plans are to spin off the underperforming network power segment this fiscal year. It’s unlikely to be the only segment to go.

Emerson’s industrial automation business is also expected to be given the heave-ho. The segment produced 18% of Emerson’s revenue last year. Industrial automation primarily makes industrial motors and drives, transmissions, alternators and controls for automated equipment. Like with network power, industrial automation revenue and operating earnings have been trending lower.

This time next year, we should be looking at a considerably leaner Emerson. But does a leaner Emerson mean a leaner dividend payout?

Management has stressed that it plans to maintain and grow the dividend. I’m not surprised. Greater efficiency leads to greater cash flow.

Assuming a leaner and more efficient Emerson, free cash flow should come in at around $1.5 billion annually. Cash flow should be augmented by a $500 million dividend from the network power spinoff and $1 billion in after-tax proceeds from the divestiture of the industrial automation segment. In other words, there will still be plenty of cash on hand to support and grow the dividend.

There would also be plenty of cash to buy back plenty of stock. In the last fiscal year, Emerson bought back $2.5 billion worth of stock, reducing the share count by 6%. The company plans to repurchase another $1.5 billion of stock in fiscal year 2016. Longer term, management wants to reduce the share count by 70 million, or 10% of outstanding shares.

Emerson has gotten off on the right foot to start fiscal year 2016. First-quarter revenue posted at $4.7 billion, beating the consensus estimate for $4.65 billion. EPS came in at $0.56. Most analysts were expecting $0.51. Emerson is on track to meet its target for $3.15 per share for 2016. That puts Emerson’s forward price-earnings multiple below 15; 18 is the five-year average.

If past is prologue, whenever a Dividend Aristocrat goes on sale, it’s nearly always a worthwhile buying opportunity. Emerson Electric is on sale. It’s a good time to buy.

— Stephen Mauzy

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Source: Wyatt Investment Research