Archer Daniels Midland Company Offers Four Decades of Annual Dividend Hikes, 2.8% Dividend Yield (ADM)
By: Ned Piplovic,
The company has been distributing quarterly dividends since 1927 and made the distributions in the form of stock dividends for decades before switching to cash dividend distributions in 2001. ADM’s current 2.8% dividend yield is on the lower end of the acceptable scale for income-seeking investors. However, the long streak of consecutive annual dividend hikes and a moderate dividend yield are still enticing enough to interest investors looking for a steady dividend income.
Furthermore, the company’s 33% dividend payout ratio – which is nearly 20% lower than the company’s 41% average over the past four years — indicates that the company’s earnings cover the dividend payouts sufficiently to allow for the continuation of the annual dividend hike streak.
The company’s share price took a dive of more than 55% in the aftermath of the 2008 financial crisis but recovered fully by April 2014 and then continued to rise towards its all-time high of $53.42 by December that year. After peaking at the end of 2014, the share price reversed direction and declined 40% before the end of 2016, when the price reversed direction one more time and recovered more than 75% of its loses during its current uptrend.
Investors convinced that the share price might continue its rise after a minor correction during October 2018 should do their research and take a position prior to the company’s next ex-dividend date on November 21, 2018. Acting before that ex-date will ensure eligibility for the next round of dividend distributions on the December 14, 2018, pay date.
Archer Daniels Midland Company (NYSE:ADM)
Headquartered in Chicago, Illinois and founded in 1898, the Archer Daniels Midland Company procures, transports, stores, processes and merchandises agricultural commodities, products and ingredients. The company operates through four business segments – Carbohydrate Solutions, Nutrition, Oil Seeds and Origination. ADM is a world leader in the production of soy meal and oil, corn for ethanol and sweeteners as well as, wheat for bakery products. The company also makes such value-added products as specialty food ingredients and specialty feed ingredients. As of 2018, the company’s approximately 31,000 employees served customers in more than 170 countries. Additionally, ADM’s global value chain includes approximately 500 crop procurement locations, 270 food and feed ingredient manufacturing facilities, 44 innovation centers and a well-developed crop transportation network.
The company’s share price started its trailing 12-month period from the 52-week low of $38.96 on November 15, 2017 and ascended nearly 33% before reaching its 52-week high of $51.79 on October 8, 2018. After peaking in early October, the share price declined along with the overall market pullback more than 10% by the end of that month. However, the share price has been rising again since the last week of October and has already regained more than 30% of the most recent losses to close on November 13, 2018 at $48.02. While this closing price was still more than 7% below the 52-week high, it was nearly 21% higher than it was one year earlier, 23.3% above the 52-week low from last November and 15% higher than it was five years ago.
The company’s current $0.34 quarterly payout is 4.7% higher than the $0.32 distribution amount from the same period last year. This new quarterly payout converts to a $1.34 annualized distribution and corresponds to a 2.8% forward dividend yield, which is 3.4% higher than the company’s own 2.7% average dividend yield over the past five years.
In addition to outperforming its own five-year average, ADM’s current yield is also nearly 33% above the 2.1% average yield of the entire Consumer Goods sector, as well as 70% higher than the 1.64% average dividend yield of all the companies in the Major Diversified Food industry segment. Furthermore, the current 2.8% yield is also 2.2% higher than the 2.73% simple average yield of the segment’s only dividend-paying companies.
Over the past two decades, ADM enhanced its total annual dividend payout amount nearly eight-fold. This level of advancement corresponds to an average growth rate of 10.7% per year for the past 20 years. The annual dividend payout grew even faster over the past five with years – at an average annual growth rate of nearly 12%.
Over the past 12 months, Archer Daniels Midland’s capital gains and dividend distributions combined to rewards investors with a 24% total return. Because of the 40% share price drop in 2014, the five-year total return of 30% is below the 37.3% total return rate for the past three years.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.