Eaton is one of the largest power-management solutions firms in the world. It provides these solutions to a broad list of companies with products in hydraulics, aerospace fuel, electrical transmission, lighting, and powertrain systems. The global firm operates by selling both to original and aftermarket customers. The firms Electrical Products segment offers electrical and industrial components while the Electrical Systems and Services segment provides power distribution. The company was founded in 1916 and is based in Dublin, Ireland.
Eaton has maintained a three-year growth rate of dividends of 7 percent. Eaton currently ranks 1st in dividend yield within the large cap industrial electrical equipment category. The quarterly dividend for the March payment will be $0.60 versus the prior year rate of $0.57 per share. Eaton is a member of our Top 100 Dividend Stocks. (see below).
The dividend will be paid at the new higher rate on March 17, 2017, to shareholders of record at close of business on March 6, 2017. Eaton Corp. is currently priced at $71.98. Listed in the table below are the quarterly dividend payments since 2010.
Analysis of Eaton is based upon our five key criteria for the Top 100 list, which include;
|Dividend Growth (3-7 year avg)||9.5%||221|
|S&P Financial Rating||A-||120|
|% Yield||3 Year Div. Growth Rate||7 Year Div. Growth Rate||SPS 2016||P/S Ratio||10 yr P/S Low||10 yr P/S High||5 yr low Yield %||5 yr max Yield %|
- Eaton’s dividend yield is above that of the S&P 500 Index.
- Eaton has paid out a dividend consecutively for the past 24 years.
- Eaton maintains an investment grade rating of A-.
- Eaton has maintained a three-year growth rate of dividends of 7 percent.
- Eaton maintains a beta of 1.20, higher than the average company.
- Eaton’s current dividend yield (3.33%) is just below its five-year average historical dividend yield.
- Eaton is trading above its ten-year average price/sales (P/S) ratio.
Latest Earnings & Overall Analysis:
Eaton issued its earnings data on February 2nd. The company reported $1.12 EPS for the fourth quarter, topping the consensus estimate of $1.10 by $0.02. Net income per share in Q4 was down 3 percent from the fourth quarter of 2015. Revenue came in at $4.9 billion for Q4, down 4 percent from the Q4 2015. Currency had a negative impact, dropping sales by 1%. Operating cash flow for Q4 was at $638 million. The firm repurchased $163 million of stock in Q4. For fiscal year 2016, total buybacks totaled $730 million. Share count was reduced by nearly 3 percent in the last twelve months.
As for guidance for fiscal year 2017, the firm projected earnings per share to be between about $4.45 with a range of $4.30 and $4.60. This was in-line with analyst estimates. The $4.45 in earnings would represent a strong 6 percent increase from the previous year. But the firm projected revenue to be flat and that currency issues will continue to affect the firm’s bottom line. Q1 2017 earnings per share was estimated to be between $0.80 and $0.90.
In breaking out the quarter, sales for the Electrical Products division came in at $1.7 billion, flat compared to Q4 of last year. Revenue was up a scant 1 percent while currency translation offset this gain. Operating income came in at $317 million, as expense reductions assisted. Margins in the Q4 came in at just over 18 percent. Revenue in the Electrical Systems and Services division of Eaton was $1.5 billion. This was a drop of 3 percent from last year’s numbers. Revenue fell by 2 percent and negative currency translation also had a 1 percent negative impact. Operating income was $177 million. Operating margins came in for this division just above 12 percent. Hydraulics was also down, with sales falling by 6 percent from last year’s Q4 numbers.
|Earnings per Share||4.2||4.3||4.67||4.19||3.96|
Eaton struggled mightily in 2016 as the heavy industrial market maintained a difficult market. All three of the company’s major segments had trouble producing better outcomes than in 2015. In forecasting 2017, things should pick up. But most of the projected earnings per share advance will come from a continued focus on cost cutting and buying back stock. Eaton’s cost management skills in Q4 once again showed management resolve to improve margins, despite revenue declines.
Electrical accounts for nearly 60% of Eaton’s revenue and earnings per share gains each year. This will continue to be the largest portion of sales for the firm. Lighting is also now a critical portion of the mix and produces nearly $2 billion of revenue for the firm. The acquisition of Cooper several years ago helped Eaton further diversify its product mix, thus also offering customers of Eaton the ability to choose from various products with one sales channel.
Overall the firm is a solid choice within the industrial space, despite the lack of revenue growth. Its payout ratio is just over half of sales. It offers a solid A- credit rating, near double-digit dividend growth, and an elevated 3.3% yield. Although the firm’s stock was a better buy a year ago when it yielded over 4%, the current yield is still well above the 2.1% yield investors got in early 2014.
|Earnings per Share 2017 (projected)||4.4|
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Eaton Corp. Dividend Yield Historical Chart (Click to enlarge)
Chart Explanation: Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years.