Is Eaton Stock a Buy Now? Here’s What You Need to Know Before the Fed’s Next Move

Power play or power drain? Eaton's stock splits the difference between industrial legacy and electrification future—just as the Fed threatens another rate hike.

Gridlock Breaks

Eaton's riding the infrastructure wave—modernizing grids, charging EVs, and automating factories. Their electrical sector isn't just humming; it's roaring. Orders backlog? Swelling. Margins? Expanding. They're not just building parts; they're building the nervous system of the new economy.

Energy Transition Turbocharge

Renewables need gear—smart switches, resilient transformers, power management that doesn't quit. Eaton's diving headfirst into solar, wind, and data center demand. Their aerospace division? Still cruising—because planes won't fly on hopes and prayers.

But Wait—The Shock Absorbers

Supply chains remain tangled, inflation bites into raw material costs, and a recession could slam industrial spending. Eaton's not immune—just better armored than most.

Verdict: A solid hold for now—unless you believe in electrification more than the Fed believes in crushing dreams with rate hikes.

From down and out to hot stock

The $13 billion acquisition of Cooper in late 2012 was huge for Eaton. Not just in what it did for the business, but simply in the scale of the transaction. It required years of effort to fully integrate Cooper into Eaton. And, while Eaton was working on that effort, the Board of Directors chose to hold the dividend static for a spell after a long history of regular dividend increases.

Image source: Getty Images.

I bought Eaton during that period because I believed the strategic benefit of buying Cooper WOULD allow the company to, eventually, start growing the dividend again. That came to pass, with Eaton's dividend back in growth mode. The industrial giant's most recent dividend increase, made in March 2025, was a hefty 11%.

The company is performing very well, as you might expect from that sizable dividend hike. In the second quarter of 2025, Eaton had record earnings, with adjusted earnings rising 8% year over year. It had record segment margins, at 23.9%. And it posted solid organic sales growth of 8%. Buying Cooper and jettisoning some less desirable operations thereafter have clearly worked out well for the company and investors who were willing to step in while Eaton was unloved.

Data by YCharts.

Wall Street has gone to an extreme again

Don't hit the buy button just yet, though. Back when I bought Eaton, the mood around the stock was dour at best. Today, given the business performance, the stock is well-loved. To put some numbers on that, the price-to-earnings ratio has gone from around 10.5x when I bought Eaton to roughly 37x today. That puts the valuation far closer to the peak level of nearly 42x over that span than the low end, where I bought it.

Then there's the dividend yield, which is a tiny 1.1% today. That's lower than the roughly 1.3% yield of the average industrial stock. It is even lower than the 1.2% yield of the average stock in the(^GSPC 0.49%). At first glance, the yield comparison here would suggest that Eaton isn't materially out of line with the market's valuation. That's actually true. The problem is that the S&P 500 index itself looks expensive right now, with a lofty P/E ratio of nearly 28x, and it is trading near all-time highs.

I would not likely buy Eaton today given the stock's valuation. That said, I tend to follow along with Warren Buffett's investment approach of buying and holding good companies so you can benefit from their growth over time. Thus, I have no intention of selling Eaton. And while I recognize that the price tag being placed on Eaton today is high, I'm happily letting the dividend reinvest. This simple approach isn't ideal from a valuation perspective, but it allows me to compound my investment in this strongly performing business without having to think about it.

I'm a fan of Eaton, but not Eaton's stock

Eaton is a situation in which the words of Buffett mentor Benjamin Graham are important to remember. Graham, a value investor, noted that even a great business can be a bad investment if you pay too much for it. I didn't pay too much when I bought Eaton, but if you buy it today, it looks like you are at risk of turning a great business into a bad investment. Be patient and put Eaton on your wish list; there's likely to be a drawdown sooner or later that will bring the valuation back to more attractive levels.