Dividend Increase | Archer Daniels Midland (ADM

Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Archer Daniels Midland for the dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On January 30th the Board of Directors at Archer Daniels Midland (ADM) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.35 up to $0.36.  That's a rather ho-hum 2.9% increase.  Shares currently yield 3.22% based on the new annualized payout.  Archer Daniels Midland is a Dividend Champion with 44 consecutive years of dividend increases.

The newly increased dividend will be payable on March 5th to shareholders of record as of February 13th.

Since I own 71.394 shares of Archer Daniels Midland in my FI Portfolio, this raise increased my forward 12-month dividends by $2.86.  This is the 2nd dividend increase I've received from ADM since initiating a position in February 2019.  The total organic dividend growth since my purchase is 7.5%.

I also own 104.907 shares in my Rollover IRA and this raise increased my forward 12-month dividends by $4.20.

A full screen version of this chart can be found here.

Of the latest 25 years of Archer Daniels Midland's streak year over year dividend growth has ranged from 2.9% to 66.8% with an average of 12.3% and a median of 7.7%.

Since Archer Daniels Midland largely deals in commodity products I expect dividend growth to vary much more compared to businesses with less fluctuations in their business model.

Of the latest 21 rolling 5-year periods annualized dividend growth has ranged from 5.0% to 16.7% with an average of 11.2% and a median of 12.0%.

Looking at the 16 rolling 10-year periods shows dividend growth ranging from 9.2% to 14.1% with an average of 11.6% and a median of 12.1%.

As you can see in the following chart dividend growth has slowed significantly over the last 5 years and should probably be monitored closely.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1995 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Arched Daniels Midland's 5-year average forward dividend yield is 2.95% which corresponds to a share price of $48.81 based on the newly raised dividend.

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $44 - $54.  At a current price of $44.66 shares are trading on the lower end of the fair value range.

Shares are currently trading at 13.7x FY 2020's estimates of $3.27 and 12.1x FY 2021's estimates of $3.69.   

Currently, Archer Daniels Midland is valued at a 12.7x EV/EBITDA multiple which suggests that shares are in the fair value range.


  




Wrap Up

This raise increased my forward dividends by $2.86 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.91% this raise is like I invested an extra $98 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

I've now received 4 raises from 4 of the 54 companies in my FI Portfolio increasing my forward-12 month dividends by $48.78.

My FI Portfolio's forward-12 month dividends are $7,959.35.  Including my FolioFirst portfolio's forward dividends of $101.12 brings my total taxable accounts dividends to $8,060.47.  My Roth IRA's forward 12-month dividends are $650.79.  My Rollover IRA's forward dividends are $2,377.33.  Across all accounts I can expect to receive $11,088.59 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Archer Daniels Midland's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Archer Daniels Midland?  How has dividend growth fared for your holdings through the first month of 2020?  Better or worse than expected?

Please share your thoughts below.