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If you are a dividend investor, then chances are you're a little more price conscious than some other investors out there. Looking for good dividend-paying stocks means finding those companies that have the financial fortitude to grow their dividends for years -- and buying the stock at a price when its dividend yield looks attractive. With today's stock market pushing new highs as of late, you have to do a little more digging to find a bargain. It seems, though, that shares of ExxonMobil (XOM 1.15%), General Motors (GM -0.17%), and Emerson Electric (EMR -0.67%) look like pretty attractive dividend investments today. Here's why.
A sour sentiment for an industry stalwart
One story that has gained a lot of traction over the past year or so has been the potential for ExxonMobil to cut its dividend. While this isn't completely out of the realm of possibility, it seems more like creating news than reporting news. The first thing to know is that ExxonMobil has raised its dividend every year for 33 years in a row, a payout streak that management routinely touts as one of the primary reasons investors should be attracted to this stock.
Another thing to consider is that the company hasn't actually cut its payout in 68 years -- its most recent streak started in 1982 when it kept its payout the same from the year prior. Exxon's dividend is clearly a point of pride. As bad as things may be for oil and gas producers today, they aren't really bad enough that ExxonMobil needs to seriously consider a major change in its payout.
It's also worth noting that ExxonMobil still remains one of the best-capitalized companies in the integrated oil and gas industry today. The company's total debt-to-capital ratio remains at a rather reasonable 17.3%, and it still has a AA+ credit rating. Even though the company's financials look strong enough to work through this downturn, and there are signs that the industry is improving, ExxonMobil's shares are still pretty cheap. Exxon's stock has a price to tangible book value of 2.1 times -- near all-time lows -- and a rather lucrative dividend yield of 3.45%.
The growth engine may sputter, but the company should move along just fine
During its second-quarter conference call, Ford Motors said that it sees U.S. auto sales plateauing. It would seem that based on the stock prices of both Ford and General Motors, the market has priced in a pretty decent decline. Today, shares of General Motors have a P/E ratio of just 3.9 times and a dividend yield of 5%.
For someone who is looking on a shorter-term time horizon, it might not seem too intuitive to buy shares of General Motors. If we were to see a flattening of sales -- or even a decline -- we could see GM's earnings decline, and that would lead to a higher multiple. If we are looking at General Motors as a potential dividend investment, though, it would seem that even today is a good time to jump into this stock.
Even if General Motors were to see a decent decline in profits, it looks as though there is a lot of wiggle room for its dividend. The company's payout ratio over the past 12 months was a very modest 19%, and the company's free cash flow over that time has been enough that it could suffer a decent decline before its dividend payment is significantly compromised.
Waiting to see how this sales plateau shakes out with investors over the next couple of months could maybe lead to an even higher yield, which is a perfectly reasonable thing to do. However, the numbers suggest that the company's stock is reasonably priced and would make a good dividend investment today.
In a down market now, but the way up looks to have lots of potential
Like ExxonMobil and General Motors, Emerson Electric is a company in a cyclical industry, and right now it's in one of those low parts of the cycle. Sales over the past four quarters have declined at double-digit rates, mostly highlighted by the company's exposure to the oil and gas and natural resources industries that are struggling mightily as of late.
Despite this downturn, there is another trait that investors should keep in mind. Like ExxonMobil, Emerson Electric has a long history as a company that has dealt with this industry cycle before. For 57 years in a row now, the company has been able to manage these ups and downs while still increasing its dividend every year. The company's payout ratio of 66% may not be as robust as General Motors', but it's still enough room for the company to work through this downturn without too much fear of something drastic happening with its dividend.
Another thing to consider with Emerson is that there is a big growth lever the company is looking to pull in the coming years. According to CEO David Farr, there is a $100 billion market opportunity in the industrial and residential automation business that Emerson is gearing up to capture. This should give the company plenty of runway over the years to grow its profits and dividends.
Despite the company's solid reputation as a dividend payer and this potential growth market, shares are still rather modestly priced. At a dividend yield of 3.75%, it seems like shares of Emerson would make a great dividend investment today.
