What Emerson actually does
Emerson makes automation technology: the valves, sensors, control systems and software that run factories, refineries, power plants and water systems. Over the last several years it sold or spun off other businesses to focus on automation, including acquiring a large stake in the software firm AspenTech.
How the business makes money
It sells equipment and software to industrial customers, then earns more from services, upgrades and software licences over many years. Customers rarely change control systems because a plant would have to stop to do it, which makes revenue sticky.
The dividend story
Emerson is a Dividend King, with raises for more than six decades. It pays quarterly. The payout is supported by cash flow, although the company has changed a lot, and the dividend growth in recent years has been modest.
What to keep an eye on
- Industrial cycles. Customers delay projects when the economy slows.
- Portfolio changes. Deals and spin-offs can distract management.
- Competition. Siemens, ABB, Honeywell and Rockwell.
- Valuation. Quality industrials often trade at a premium.
Quick take
Emerson is a quality industrial with a very long dividend record, now more focused on higher-margin automation.