Some of the world’s best investors seek out a steady stream of income. It’s a top wealth building strategy and finding the best dividend stocks is key. So today we’re going to review another one of the best dividend stocks available. Let’s look at Archer Daniels Midland‘s (NYSE: ADM) dividend history and safety.
Business Overview and Highlights
Archer Daniels Midland is a $27 billion business. The company is based out of Chicago, Illinois and employs 31,300 people. Last year, Archer Daniels Midland pulled in $61 billion in sales, which breaks down to $1.9 million per employee.
The company runs within the consumer sector and maintains a great credit rating (A) from the S&P. This allows Archer Daniels Midland to issue cheap debt to grow the business and finance other initiatives.
One recent proposed acquisition is Neovia for €1.535 billion. The company is headquartered in France and has 72 production facilities across 25 countries. This expansion would bring new cash flow to Archer Daniels Midland and help sustain the dividend payouts.
Archer Daniels Midland Dividend History 10-Years
The company paid investors $0.49 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.28. That’s a 161% increase! You can see the annual changes below.
The compound annual growth is 10.1% over 10 years… but over the last year, the dividend climbed 6.7%. The slowdown in dividend growth isn’t a great sign. However, Archer Daniels Midland still might be a good income investment. The yield will give some insight.
ADM’s Current Yield vs. 10-Year Average
Archer Daniels Midland’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 2.75%, which is in line with the 10-year average of 2.71%. The chart below shows the dividend yield over the last 10 years.
With consistent dividend payers, the dividend yield tends to be mean-reverting with share price changes. Since the yield is right at the 10-year average, shares might or might not be overvalued.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. To do this, they look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 Archer Daniels Midland earns, it pays investors $0.60.
A company’s payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Archer Daniels Midland payout ratio based on free cash flow over the last 10 years.
The ratio is volatile over the last 10 years, and the trend is up. The last reported year shows a payout ratio of 62.7%. This gives wiggle room for Archer Daniels Midland’s board of directors to raise the dividend.
Closing Thoughts on Archer Daniels Midland Dividend History
The slowdown in dividend growth isn’t a great sign, but the current yield isn’t bad. It’s just below the 10-year U.S. treasury rate. However, the payout ratio has spiked, and dividend increases might not be sustainable going forward.
If you’re interested in seeing more, please comment below. You can also check out our dividend reinvestment calculator.
Good investing,
Rob
