Weak revenue plagues Rockwell Automation (ROK) though firm announces 5% dividend increase

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Rockwell Automation’s (NYSE:ROK) dividend was increased by 5% with an overall yield above that of the S&P 500 Index at 2.57%. Rockwell Automation has maintained a solid three-year growth rate of dividends of 14.1 percent. Rockwell Automation is a global provider of industrial automation power and information solutions. It has two divisions including Control Products  & Solutions and Architecture & Software .

Rockwell Automation has paid dividends on a consecutive basis for 23 years. It currently ranks 18th in yield within the large cap industrial category. Rockwell also reported reduced Q4 earnings of $1.43 a share, down substantially from last year’s Q4 $1.50 a share.The industrial firm generated sales of $1.5 billion in Q4, which was 4% lower than last year’s figures. But forward guidance for the company was positive as Rockwell forecast earnings of $5.85 to $6.25 per share and revenue of $5.94 billion to $6.17 billion.

The quarterly dividend for the December payment will be $0.76 versus the prior year rate of $0.725 per share. Rockwell Automation does not qualify as a member of our Top 100 Dividend Stocks (see below).

The dividend will be paid at the new higher rate on December 12, 2016, to shareholders of record at close of business on November 14, 2016. Rockwell Automation is currently priced at $118.31. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
11/14/2016 0.76
8/11/2016 0.725
5/12/2016 0.725
2/11/2016 0.725
11/19/2015 0.725
8/13/2015 0.65
5/14/2015 0.65
2/12/2015 0.65
11/13/2014 0.65
8/7/2014 0.58
5/8/2014 0.58
2/13/2014 0.58
11/14/2013 0.58
8/8/2013 0.52
5/9/2013 0.52
2/14/2013 0.47
11/8/2012 0.47
8/9/2012 0.47
5/10/2012 0.425
2/16/2012 0.425
11/9/2011 0.425
8/11/2011 0.425
5/12/2011 0.35
2/10/2011 0.35
11/10/2010 0.35
8/12/2010 0.35
5/13/2010 0.29
2/11/2010 0.29

Analysis of Rockwell Automation Inc. is based upon our five key criteria, which include; 

Category Value Score
Dividend Yield 2.57%  205
Dividend Growth (3-6 year avg) 14.9% 132
Forward P/E 19.64  196
S&P Financial Rating A  120
Beta 1.15  175
Total Score    828

Additional Information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr max Yield % 5 yr lowest Yield %
2.57% 14.1% 15.8% 45.45 2.60 0.94 2.81 2.93% 1.72%

Final Analysis;   

Positives;

  • Rockwell Automation maintains a 3 year dividend growth rate of 14.1%.
  • Rockwell Automation has paid out a dividend consecutively for the past 23 years.
  • Rockwell Automation maintains a credit rating of A. This is investment grade
  • Rockwell Automation’s current dividend yield (2.57%) is above its five-year average historical dividend yield of 2.33% and above that of the S&P 500 Index.

Negatives;

  • Rockwell Automation maintains a beta of 1.15, higher than the average company.
  • Rockwell Automation is trading at a high forward PE ratio and on a price/sales (P/S) basis it is trading at elevated historical levels. From a relative valuation perspective based upon P/S, Rockwell Automation is overvalued.
  • Rockwell Automation has had three years of revenue deceleration.

Weak capital spending across the entire resource sectors like energy and materials have dramatically effected Rockwell’s ability to jump-start revenue and earnings growth over the past three years. The decline this quarter in revenue (-4%) follows this past summer’s revenue drop of 6.4%.  Its been a consistent theme for Rockwell. Much of this malaise is based on the fact that nearly half of all of Rockwell’s sales come from overseas markets. This makes the company very vulnerable to not only continued global industrial weakness, but also a strong dollar.

Although management indicated that next year should be the first full year of sales growth in three years, investors may want to take a wait-and-see approach.  In regard to dividend growth, Rockwell’s management has made it a major focus to return cash to shareholders. The 14% growth in dividends over the last three years is impressive. Its current yield of 2.57% is above historical averages.

However, the firm’s stock has a higher beta than many of its competitors and the market. Additionally, its P/S ratio and forward P/E is much higher than average and towards its historical highs. Hence, based upon its declining revenue numbers, high beta and elevated P/S ratio, Rockwell Automation does not qualify as one of our Top 100 Dividend Stocks.

Rockwell Automation Inc. Dividend Yield Chart (Click to enlarge)

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Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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