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Deere Is the Top Agriculture Dividend Stock for Investors Today

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Friday, 12 October 2018 04:07 PM Current | Bio | Archive

Agriculture stocks play a crucial role in the U.S. economy. Agriculture is one of the oldest industries in history, and is responsible for feeding the population. In this way, agriculture is necessary for modern life.

Naturally, agriculture stocks could be excellent picks for long-term investment.

Some of the best stocks to own over the long-term are those that have durable competitive advantages and provide products and services that are always in demand. Deere & Company (DE) perfectly fits the mold.

Deere has a great deal of brand power, and is at the center of the U.S. agriculture industry. It is a highly profitable company, and will reap many years of growth from a major trend—the growing population. Deere is also a high-growth dividend stock. As a result, Deere is the top agriculture dividend stock today.

Tackling A Complex Problem

The world is facing a complex and difficult task—feeding the growing population. According to Deere’s most recent annual report, the global population increases by approximately 200,000 people per day. With the world’s population currently above 7 billion, this means the global population could reach 9 billion by 2050. This will inevitably result in higher demand for food—according to Deere, global demand for food is expected to double in the first half of this century.

Since there is only so much land that is available for farming, this presents a significant and potentially serious problem. The good news is, Deere stands to benefit from this powerful global trend. Deere manufactures heavy machinery, catering to the agriculture, construction, and forestry industries. Its machines include tractors, combines, and more. Its total sales neared $30 billion in 2017.

Deere is in excellent position to capitalize on the complex issue of rising global populations, because of its brand power and history of innovation. Deere was founded over 180 years ago, and over the course of its existence has become a market leader through investing in new products and technologies. Last year, Deere invested $1.37 billion in research and development. It invested another $586 million into capital expenditures, and $285 million in acquisitions.

The past few years have been more challenging for Deere, due to the downturn in agriculture commodities. Falling prices for commodities like corn and soybeans fueled lower farm incomes, which in turn resulted in lower demand for agricultural machinery. But Deere has encountered many challenges throughout its long history, and this was no different. With a laser-like focus on reducing costs, Deere maintained profitability, and came out of the downturn better than ever.

In the most recent quarter, Deere’s equipment sales increased 36%, primarily due to a rebound in agriculture commodities over the past year. The company set a record for earnings per share last quarter. Deere expects total sales to increase 26% for the full fiscal year. This will allow the company to continue rewarding shareholders.

Feeding Shareholders With Cash

Deere is a very shareholder-friendly company. Management is intent on returning lots of cash to shareholders each year, through dividends and stock buybacks. For example, from 2004-2017 Deere spent nearly $17 billion on repurchasing its own shares. It also paid $764 million of dividends in 2017 alone. The current $2.40 per-share dividend provides shareholders with a 1.6% dividend yield. While this is slightly below the average dividend yield of the S&P 500 Index, Deere could grow the dividend at a high rate moving forward. On May 30, Deere raised its dividend by 15%.

Through a combination of revenue growth, share repurchases, and the recent U.S. tax reform, Deere could be expected to grow earnings-per-share by 6% per year. The combination of valuation changes and dividends is likely to have a positive impact of approximately 1% per year, meaning Deere’s annual returns could reach 7% per year over the next five years. Shareholder returns could be even higher, if Deere’s earnings growth exceeds estimates.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
Some of the best stocks to own over the long-term are those that have durable competitive advantages and provide products and services that are always in demand. Deere & Company (DE) perfectly fits the mold.
deere, top, agriculture, dividend, stock
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2018-07-12
Friday, 12 October 2018 04:07 PM
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