Latest Roth IRA Purchase: EMR

For my dividend growth investing portfolio I try to buy stocks that have wide moats and that I feel will be around for years to come. I recently read an article on Seeking Alpha discussing Emerson Electric and feel that it fits the bill.

Today I purchased 44 shares of EMR at 57.55/share within my Roth IRA. This is the second purchase made within my Roth for 2015, the first being CVX. I’ve so far contributed $4000 and have $1500 still remaining. I’m hoping to add that remaining money as quickly as I can.

Emerson Electric is an industrial company which has been increasing dividends for 58 years. Its dividend growth rate over the last 43 years has averaged 11.5% (though has slowly recently in the last 5 years to around 5.9%).

EMR, I think, did have some exposure to the oil industry so recently dropped a bit like everything else. I was able to buy it just a few dollars per share higher than its 52-week low of 55.81. Like all the stocks I own, this one is a buy-and-hold stock and will have dividend reinvest turned on. If it drops, I may choose to dollar-cost average down like I recently did with CVX.

I decided to purchase this within my Roth for a number of reasons:

1) It pays a decent dividend at 3.27%. Since I’m limited in how much money I can contribute into the Roth each year, I had to decide on a possibly higher growth stock (like Mastercard, Visa, or Franklin Resources) but with lower dividend yield, or a higher dividend yielding stock like Emerson Electric. It will be awhile before the dividends of the Visas of the world amount to much. However, right now the dividends in my Roth IRA alone are around $1409. That means that if I turn off reinvest I’ll have that much additional each year to invest in a stock of my choosing. Rather than contributing “only” $5500 a year, my actual contribution is now up to $6909. Higher yielding stocks will allow that amount to go up more each year.

2) Also, the higher growth but lower yielding stocks are also inherently more tax efficient and therefore don’t necessarily warrant the additional protection in a Roth. The Conservative Income Investor recently wrote an article called My Philosophy On Low Dividend Stocks in which he makes the point that placing high growth but low dividend stocks “in taxable accounts [is] great way to maximize returns because you are minimizing what you ship off to Washington D.C. and letting the company benefit from the tax efficient forms of compounding that are inherent when the company grows internally and repurchases its own stock.” Of course, taxes on capital gains will be owed eventually if I’d elect to sell it in a taxable account, however, few taxes would be paid before then since the dividend payout is relatively low.

You could make the argument that low dividend stocks should be in a Roth because they’d be the ones most likely to rise quickly and contribute to a large capital gain that could then be used to purchase a lot more of higher dividend paying stocks in the future… Neither approach is wrong and I may ultimately go that way in the future too!

This stock is a new company in my portfolio. It brings my total number of stocks up to 27. It is from the Industrials sector, joining CAT and GE, which in total is currently valued at $11,823.96. This purchase adds $82.72 to my annual dividends.

Company Symbol Shares Price Yield Expected Annual Dividend
Emerson Electric EMR 44 57.55 3.27% $82.72

Forward 12-Month Dividends: $3,793.12 ($316.09/month).

Full disclosure: Long CAT, EMR, GE

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5 Responses

  1. Scott, love the purchase! I just picked up some shares of EMR myself yesterday, and am glad to add the diversification in both sector and number of companies. A great complement to GE for sure.
    writing2reality recently posted…Using P2P Lending to Protect Against Short-Term Cash NeedsMy Profile

  2. FerdiS says:

    Nice purchase — I noticed W2R picking up shares as well.

    The debate about higher yield versus higher growth is interesting. Depending on the parameters, it can take a very long time for low yielding stocks to catch up to their high yield counterparts. Given the tax protection you get , I like your approach of going with high yielders first.
    FerdiS recently posted…10 Dividend Growth Stocks For February 2015My Profile

    • scott says:

      Thanks, FerdiS. I will admit that I was a little torn between EMR and one of the low yielders, like MA. The reason being that I could likely count on more appreciation of capital from MA than I could from the more blue chip companies. And then when I wanted more dividends, I could just sell it and use it to buy even more higher yielders than I could have initially. I bet both ways will work out well in the future…the key is to just keep contributing to your investments.

      Thanks for reading!

  3. DivHut says:

    Nice pick up with EMR. It has been a long time holding of mine in my brokerage account and ROTH as well. I am amazed at how popular it has been in the last few weeks as seemingly every dividend blogger has been picking up shares in that company. I got some a few weeks back as well. JNJ has been another hot name too. Thanks for sharing and hold on to those shares for years to come.
    DivHut recently posted…Regret Is My MotivatorMy Profile

    • scott says:

      It should have, but, to be honest, it really didn’t cross my mind until I read a positive article on Seeking Alpha about it. I wonder how much that site influences these kind of things! Haha.

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