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Archer-Daniels Midland (ADM) Stock Analysis

by | Dividend Aristocrats & Champions, Dividend Stock Analysis

Archer-Daniels Midland Dividend

(updated 6/23/2017)

ADM has paid a dividend since 1927 and increased its dividend for 41 consecutive years; qualifying the company as a Dividend Champion and a Dividend Aristocrat .

Price: $41.16
Current Dividend: $1.28

Dividend Yield: 3.1%
Cash Dividend Payout Ratio:  74%

Market Capitalization: 24 B
Enterprise Value: 30 B

Description

Sector: Consumer Defensive
Industry: Farm Products

Archer-Daniels Midland Co is a processor of oilseeds, corn, wheat, cocoa, and other feedstuffs and is a manufacturer of vegetable oil and protein meal, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients.

SWOT Analysis

Strengths

Archer-Daniels Midland has sustainable competitive advantages such as size, a far reaching global research and development network, global transportation networks, a state of the art culinary center, plus processing plants, storage, and laboratories that offer barriers to entry that disadvantage smaller regional competitors.

ADM is a premier soybean processor (a key component of animal feeds) and is perfectly positioned for emerging markets where meat consumption is projected to experience significant growth.

Weaknesses

ADM is highly susceptible to negative shocks from commodity price volatility. The cost of energy, which can be volatile, is an important cost of production.

Opportunities

The global needs for food and nutritional improvements will be increasing demand for ADM products for decades to come.
Lower fuel and energy prices (at least in the short run) could reduce cost and boost margins.

Threats

Banning of Genetically modified organisms (GMO’s) in certain countries reduces the number of markets for some products.

ADM has benefited from government subsidies for corn ethanol. The Trump administration will be looking for ways to reduce government payouts. If these subsidies were to be eliminated or reduced it would be a negative for company earnings.

Dividend Analyzer Checklist

(updated January 2017)

Dividend Safety Score (24/33 points)

Dividend Per Share (ttm): $1.18
Dividend Payout Ratio (ttm): 44%
Dividend Per Share (10 Year Growth): 11.7%
Cash From Operations (CFO) Per Share (ttm): $4.26
CFO Dividend Coverage (CFO / DPS): 3.6 (4/6 points)
Free Cash Flow (FCF) Per Share (ttm): $2.71
FCF Dividend Coverage (FCF / DPS): 2.3 (4/6 points)
Net Financial Debt: $6116
Total Assets: $39853 M
Net Financial Debt / Total Assets: 15% (9/12 points)
Net Financial Debt to EBITDA (ttm): 219%
Total Liabilities to Assets Ratio (Qtr.): 56%
Piotroski Score (1-9) (TTM): (7/9 points)

Profitability & Growth Score (16/33 points)

Revenue (10 Year Growth) *CAGR > 4.14%: 6.3% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 4.2% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 6.1% (6/6 points)
Operating Earnings Yield (ttm): 5.7% (2/7 points)
Net Income (ttm): $1573 M
Gross Profit (ttm): $3523 M
Total Assets: $39853 M
Gross Profitability Ratio = GP / Total Assets: 9% (0/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 7%
Return on Invested Capital (ROIC): 6%
Return on Invested Capital (ROIC) (5 Year Median): n/a
Return on Invested Capital (ROIC) (10 Year Median): 8%

Valuation Score (23/34 points)

Free Cash Flow Yield (ttm): 6.1% (7/9 points)
EV to EBIT (ttm): 14.5 (5/9 points)
EV to EBITDA (ttm): 10.3 (5/9 points)
PE10: 16.5 (6/7 points)
Price to Sales Ratio (ttm): 0.4
Price to Book Value (ttm): 1.5
Price to Earnings Ratio (P/E) (ttm): 16.9

TOTAL POINTS – (63/100) (50 is an average score)

*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.

Latest Earnings Report: 11/01/2016
Estimated Next Earning Report: 2/07/2017

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Conclusion

(updated January 2017)

Type of Investor / Recommendation

Large Diversified Dividend Portfolios / Should Be Considered
Looking For Exposure to Consumer Defensive Sector / Can Be Considered
Deep Value Investors / Watch list

Archer-Daniels Midland (ADM) is ranked #46 (out of 246) overall and #11 (out of 33) in the Consumer Defensive Sector by the Dividend Analyzer.

ADM has been struggling with some of its profitability metrics. However, the company has a long history of rising to challenges and seems to be turning those issues in a positive direction. Food and farm products are poised for long term growth, making ADM an easy add to a watchlist.

Portfolio Position Disclosures:
DVB Foundation Portfolio: None
DVB Dividend Growth: None
DVB High Income: None
Arbor Asset Allocation Model Portfolio (AAAMP): None

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Disclaimer: While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.
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