Monday, September 15, 2008

Archer Daniels Midland (ADM) Dividend Stock Analysis

Archer Daniels Midland Company procures, transports, stores, processes, and merchandises agricultural commodities and products primarily in the United States. It operates in three segments: Oilseeds Processing, Corn Processing, and Agricultural Services.


Archer Daniels Midland is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 33 consecutive years. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 6.50 % to its shareholders. The stock has lost over half its value so far in 2008.


At the same time company has managed to deliver a 24.40% average annual increase in its EPS since 1999.















The ROE increased from 5% in 1999 to over 20 % before falling down slightly to 15% in 2008.
















Annual dividend payments have increased over the past 10 years by an average of 12.10% annually, which is higher than the growth in EPS. Using the rule of 72 a 12% growth in dividends translates into the dividend payment doubling almost every six years. If we look at historical data, going as far back as 1988, ADM has actually managed to double its dividend payment every five years on average.
















If we invested $100,000 in ADM on December 31, 1997 we would have been able to purchase 5949 shares (Adjusted several 5% stock dividends). In February 1999 your quarterly dividend income would have been $257. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1031 by August 2008. For a period of 10 years, your quarterly dividend income would have increased by 201%. If you reinvested it though, your quarterly dividend income would have increased by 301%.
















The dividend payout ratio has largely decreased from over 45% to less than 20% over our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.













ADM does look attractively valued with its low price/earnings multiple of 9, low DPR as well as attractive yield at 2.20%. The current yield is pretty attractive based off historical standards. The current P/E is also attractive relative to what it has been over the past decade. In order to protect principal I would look into dollar cost averaging into the stock.

Disclosure: I own shares of ADM
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5 comments:

  1. DGI: I am going to have to start checking with you. :) I chose ADM for an analysis this week, but changed to CL at the last moment.

    Best Wishes,
    D4L

    ReplyDelete
  2. Thanks for this one, Barron's recently had a review of this stock as well putting the context of its downturn and future growth potential into perspective.

    http://online.barrons.com/article/SB122048050427496593.html?mod=googlenews_barrons

    ReplyDelete
  3. Great analysis. However, I don't understand the statement "...as well as attractive yield at 2.20%"

    ReplyDelete
  4. D4L,

    No worries, our analysis styles are different, and besides it pays to see stuff from two opposing viewpoints.

    Liana c,

    Thanks a lot for mentioning this article.

    Anon,

    I believe ADM has an attractive dividend yield because it is more than or equal the dividend yield on S&P 500.

    ReplyDelete

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