New Buy: Eaton Corp (ETN)

While the US markets keep breaking records, my watchlists keeps slimming down. It gets harder to find undervalued dividend growth stocks when stock prices just keep climbing. Corporate tax reform - with a sharp rate reduction - will likely push the markets even higher.

Last week however I decided to buy shares in a company that in my opinion is an attractive purchase right now - with good dividend growth prospects.

On December 14 I added 15  shares of Eaton Corp (ETN) for a total of $1,166.

In this post I will cover some key features of this company, why I liked the stock enough to add it to my portfolio and what this purchase means for my forward dividend income.

Eaton Corporation plc operates as a power management company worldwide.

Its Electrical Products segment offers electrical and industrial components, residential products, single phase power quality products, emergency lighting and fire detection products, wiring devices, structural support systems, and circuit protection and lighting products.

The company’s Electrical Systems and Services segment provides power distribution and assemblies, three phase power quality products, hazardous duty electrical equipment, explosion-proof instrumentation, utility power distribution, power reliability equipment, and services.

Its Hydraulics segment offers various power products, controls and sensing products, fluid conveyance products, filtration systems solutions, industrial drum and disc brakes, and golf grips.

The company’s Aerospace segment provides hydraulic power generation systems, controls and sensing products, fluid conveyance products, and fuel systems for commercial and military use.

Its Vehicle segment designs, manufactures, markets, and supplies drivetrain, powertrain systems, and critical components, including transmissions, clutches, hybrid power systems, superchargers, engine valves and valve actuation systems, cylinder heads, locking and limited slip differentials, transmission controls, fuel vapor components, fluid connectors, and conveyance products.

The company serves industrial, institutional, governmental, utility, commercial, residential, information technology, renewable energy, marine, agriculture, oil and gas, construction, mining, forestry, material handling, truck and bus, machine tools, molding, primary metals, and power generation markets, as well as original equipment manufacturers and aftermarket customers of heavy, medium, and light-duty trucks, SUVs, CUVs, passenger cars, and agricultural equipment.

Eaton Corporation plc was founded in 1916 and is based in Dublin, Ireland.

Eatons’s current dividend yield is 3.11% –  slightly below the average 3.5% yield I strive for in building my portfolio.

The company is featured on David Fish’s list of Dividends Champions, Contenders and Challengers - with an 8  year streak of growing dividend pay-outs.

The 5 year dividend growth is a decent 9.57% - with last year’s dividend growth coming in at 5.26%.

The Payout Ratio is attractively low at just 54%.

Eaton’s Earnings per Share (EPS) over the last five years shows an 1.39%  increase. Projected EPS growth for next year as compared to the current year is 12.17%.

The trailing 12 months Price/Earnings (P/E) is 12.13, which is significanlty lower than it’s 5 year average of 16.82. It is also significantly lower than the industry’s 5 year average of 34.27.

EVA Dimensions (an equity research firm) states in their December 15 report that Eaton’s Performance Risk Valuation PRVit score is at the 68th percentile of all firms in its industry, which leads to a recommendation to Overweight.

It adds that ETN is more attractively priced in relation to its true value than well over half of the stocks in its industry.

Ford Equity Research recommends a ‘BUY’ with a 52-week price range of $66.88 - $81.51.

Jefferson Research concludes that Eaton is showing strong Cash Flow Quality, Operating Efficiency and Balance Sheet Quality, and Valuation suggests a lower amount of price risk, but Earnings Quality is weak. When combined, ETN deserves a ‘BUY’ rating.

Eaton’s annual dividend of $2.40 per share increased my forward annual dividend income by $36. 

What do you think about Eaton Corp right now? Are you buying other dividend growth stocks? Leave a comment/reply to share your thoughts!

Author: Tall Investing

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