Tuesday, January 17, 2012

Stock Bought: ADM

Today I bought shares of Archer Daniels Midland (ADM), a company that buys, transports, stores, processes, and sells various agricultural commodities and products around the world. I consider ADM to be a good long-term investment because the company is well-positioned to play a major role in addressing the greater food needs of an ever-increasing world population.

ADM is also a good dividend-growth stock. The company has paid uninterrupted dividends for 80 consecutive years and increased its dividend for 36 consecutive years. The 5-year average annual dividend growth rate is 10.4% and last quarter the dividend was increased by 9.4%, which was the second increase in 2011. Here is an excerpt from the press release on November 3, 2011, about the dividend increase:
"We are increasing our dividend to reflect the earnings growth we have experienced during the past fiscal year and our commitment to deliver returns to our shareholders for both the near term and the long term," said Chairman, CEO and President Patricia A. Woertz. "We have a strong balance sheet to support this increase and we are confident we have a solid foundation to drive long-term earnings growth for our company."
This statement is encouraging and suggests that ADM is able to cope with challenging business conditions (e.g., rising raw commodity costs). Moreover, with a payout ratio of only 21%, the dividend appears to be very sustainable.

The stock has been beaten down lately and is trading 24% below its 52-week high. In terms of valuation, it has a P/E (ttm) of 8.57, P/S (ttm) of 0.23, P/B of 1.06, and PEG of 1.17. These numbers suggest that the stock is considerably undervalued, so I figured it was a good time to buy.

I bought 60 shares of ADM at the price of $28.93 per share, giving me a 2.42% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $10.50, which would add a total of $42.00 to my annual dividend income.

2 comments:

  1. Interesting choice! I've looked at ADM sparingly in the past. Seems like a great play on Big Ag, especially at the valuation.

    Best wishes with your investment!

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  2. Thanks, DM. I think agriculture will become increasingly important in the future, so ADM seems like a good long-term investment.

    ReplyDelete