As you, my dear reader, already know, I buy stocks several times a year. The minimum amount of a purchase is around $ 1,400. This to keep the fees within reasonable proportions.
At this moment I have approx. $740 free cash in my Vrijheid Fonds. And every month I donate fresh capital. In December I will be having enough cash for another purchase. So now is a good time to do some additional research for potential companies to buy.
So what to buy? You know I prefer a Dividend Aristocrat with a high DGR (who doesn’t?). And if you look at my Vrijheid Fonds, you see that I’m low on materials. And after reading a great post from the Dividend Diplomats on Low Debt to Equity ratio, I got curious about a farmers company.
This analysis is on Archer-Daniels Midland Company (ADM).
Company (from google finance): Archer-Daniels-Midland Company is a processor of oilseeds, corn, wheat, cocoa, and other agricultural commodities and manufactures protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients. The Company’s segments include Oilseeds Processing, Corn Processing, Agricultural Services and Wild Flavors and Specialty Ingredients. The Corn Processing segment is engaged in corn wet milling and dry milling activities. The Agricultural Services segment utilizes its United States grain elevator , global transportation network and port operations to buy, store, clean and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry. Wild Flavors’ products include flavors, colors, sweeteners and health ingredients, as well as ready-to-market concepts and complete solutions.
Can I explain this to a 10-year old? What Does This Company Do? Archer Daniels Midland Company is the company that takes crops from farmers and processes them to make food ingredients. Probably the corn for your breakfast cereals has been produced by ADM.
Dividend Aristocrat: ADM is paying Dividend for 40 years in a row! And is a Dividend Champion. It is number 59 on the CCC-list form David Fish! They are a four star stock on Morningstar.com. That’s a Passed!
Dividend Yield > 2.5%: The dividend Yield of ADM is 3.27%. It’s above the industry average of 2.2%. ADM has a healthy dividend that can offer investors higher returns if they choose to reinvest it. And way higher than their 5 years average (2.1%). The Yield is above the requirements of the Pollie-Code, and therefore it passed the second Pollie-code.
Dividend payout <70%: The dividend payout is roughly 39%. This is below the maximum ratio. This also means that they can keep those dividend increases coming for a long time. Great! That’s what we DGI’s want. So also passed for this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 en 10 years are 26.3, 13.6, 11.4 and 12.3. With a 3 years DGR of around 14%. It is way above the requirements of the Pollie-code, so it is a pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. ADM has a current P/E ratio of 12.1. The industry average is 15.4. The P/E ratio is lower than the industry average and also lower than its 5-years average (15.4). Therefore it is a pass on the Pollie-code.
EPS > 0: The EPS is 2.88. So ADM also passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 9.8%. This is just a tad below the requirement of the Pollie-Code. Therefore it is a fail.
Market Cap. > 100M: No problem at this point. More than 21.775 $Mil. Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 14.5. So ADM also passed the ninth Pollie-code.
Stock price 52wk high-25%: The 52 wk high and low are: 53.69 and 33.84. This means that ADM will be in my buying zone when the stock price is below 48.73 ((53.69-33.84)*0,75 + 33.84). At this moment ADM is trading for $35.00. Great, this is below the requirements. Therefore it is a pass on the Pollie-Code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for ADM is 1.18. This is a bit higher than hoped.
Conclusion: When I look at the analysis, ADM passed 9 out of 10 from the Pollie-code. The Pollie-code only failed at the ROE. And it was a close finish. Considering all the data ADM is a great company.
The DGR (3-years) of ADM is higher than my weighted average DGR of 6.5%. The Beta is higher than the weighted average beta of 0.68. The yield is just below my weighted average yield of 3.5%. Despite a slightly lower ROE and a higher Beta, in my opinion it will be a nice addition to my Vrijheid Fonds.
What are you – the readers, thoughts on Archer-Daniels Midland Company? Is it a buy?
Please comment on my analysis and thanks for stopping by!
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