Farm To Table Dividends

The ‘farm products’ industry has caught my eye in recent weeks as I have been slowly adding to my Archer-Daniels-Midland Company (ADM) holding as better prices, value and yield for this dividend stalwart began to emerge. While I’m not a huge fan of commodity based businesses, (I see ADM more as a consumer staple play with commodity ties, rather than a pure play commodity based business), I began to wonder what other dividend players can be found on the farm.

 

When I first started this blog I wrote a post titled, “Moo… Agribusiness Dividend Stocks,” where I highlighted various agribusiness plays including, The Mosaic Company (MOS), Potash Corp. of Saskatchewan, Inc. (POT) and Agrium Inc. (AGU) as well as Monsanto Company (MON), CF Industries Holdings, Inc. (CF) and even the ETF Market Vectors Agribusiness ETF (MOO). A few of these names can be found among the portfolios of our fellow dividend growth investors and while some of those seed and fertilizer businesses clearly offer some compelling yield and growth potential I found a few other lesser known dividend payers from the farm. With that being said, let’s take an overview of some of those dividend stocks.

 

First up, Bunge Limited (BG). Similar in business to ADM, BG produces, processes and stores oilseeds and grains, including soybeans, rapeseed, canola, sunflower seeds, wheat, and corn to animal feed manufacturers, livestock producers, wheat and corn millers, other oilseed processors, third-party edible oil processing companies, and biodiesel industries. Founded in 1818 and headquartered in White Plains, New York, BG is a company with a very long history of operations. Currently yielding a decent 2.30% with a relatively low payout ratio of 29.5% this stock sports a safe dividend with room to grow based on a current EPS of 5.15. BG also has a pretty impressive ten year annualized dividend growth rate of 10.31%. From a valuation perspective, BG has a current PE of 20.4 well below its five year average of 27.0. Like ADM, could BG be looking a lot more attractive than in recent months because of commodity price pressure, a strong U.S. dollar and general weakness from the Asian and European economies? Forward PE for BG looks a lot more enticing at 9.9. Of course, a four star rating from Morningstar doesn’t hurt either.

 

Continuing our stroll around the farm I came across Cal-Maine Foods, Inc. (CALM). CALM is the largest egg producer in North America. The company markets and distributes its eggs under popular brand names including Egg-Land’s Best, Land O’ Lake, Farmhouse, and 4-Grain as well as various private labels. Chances are quite high that you have consumed a CALM egg a some point in your life, especially if you live in North America. Based in Jackson, Mississippi, CALM offers us a juicy 4.40% yield with a moderate payout ratio of 41.5%. CALM has a current PE of 8.2 which is well below its five year average of 14.4. Forward PE is even less at just 4.8. Seems like many companies in the agricultural/food space are trading at attractive values these days.

 

If any of you have been to the grocery store in recent months you already have seen the volatility that can be found in the egg business. Anything from Avian Flu to shifting consumer tastes can put a strain or cause a glut upon egg production which easily impacts the bottom line of CALM. Near term, we are experiencing an egg shortage and for the most recent period ending in August egg prices rose 65% to $2.24 up from $1.35 the year before for a dozen. Could this bode well for CALM going into 2016?

 

Moving away from the eggs section we find ourselves in the fresh produce aisle and Fresh Del Monte Produce Inc. (FDP). FDP produces, markets, and distributes fresh and fresh-cut fruit and vegetables worldwide including bananas, pineapples, melons, tomatoes, grapes, apples, pears, peaches, plums, nectarines, cherries, citrus, avocados, blueberries, kiwi and much more. FDP has an interesting history as it was created when RJR Nabisco sold the fresh fruit division of Del Monte Foods in 1989. Following that sale, FDP changed hands several times until current CEO Mohammed Abu-Ghazaleh purchased Fresh Del Monte in 1996 and took it public the following year. Currently yielding a relatively low 1.24% with a 19.9% trailing twelve month payout ratio, FDP has a current PE of 16.0 which is above it five year average of 13.9. While the yield may not be that attractive, FDP still does trade well below the S&P averages. With room to continue to pay and grow its dividend, I would like to see a longer history of consecutive dividend distributions before considering investing in this name.

 

It’s interesting that the above companies are not found among the many dividend growth portfolios that exist even though each provides a staple product that we are all dependent upon. Sure, the products can be fickle when it comes to pricing as these ‘staples’ are still commodities subject to the rise and fall in price of the underlying commodity which may make it less attractive for anyone looking to add stability to a dividend growth portfolio. But, with all the headwinds these companies are currently facing they still offer decent yield and very compelling value.

 

Are any of the names mentioned in your portfolio or on your watch list? Please let me know below.

 

Disclosure: Long ADM

26 thoughts on “Farm To Table Dividends

  1. Already a fellow shareholder of ADM, but I’ve followed CALM on and off for about a year. A simple, easy to understand business. I always have eggs in my place (I make french toast all the time). I just never found the time (or capital) to buy.

    Some people might be enticed by the excitement of the tech or biopharma sectors, but I’ll take something like farming any day. No matter where we are technologically, we humans are going to need food (unless we all get cyborg enhancements in the distant future that eliminates the need to eat, but I don’t see that in our lifetimes). And as it stands, we live in a world with a growing population. Business will always be growing in the long run, no matter what level of technology we’re at, our short-term economic status, or what commodity prices such as cattle and eggs are at.

    And what a perfect metaphor for our type of investing. Just like a farmer plants seeds and grows food, we also plant seeds (initial capital) and grow our dividends. And it’s good when these businesses not only grow our food for us, but grow our money for us too. Man, Keith, I feel like you and I should chip in and buy ADM’s CEO a Christmas card or something.

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…Angry Retail Banker Is 1 Year Old!!!!!!My Profile

    • Hi ARB,

      Happy to chat with another ADM shareholder. These days the value and yield offered by ADM is too compelling to ignore, especially for such a strong dividend stalwart. Regarding CALM, if you have the stomach for wild commodity price swings then it can definitely be an interesting dividend play though their yield largely reflects the previous quarter results. As egg prices rise so does the tendency for CALM’s yield. But, as you know, any commodity play can be very volatile and the yield for CALM swings both ways. True, eggs are a staple that can be found in almost every single home in North America yet prices can vary wildly from quarter to quarter.

      I too like agriculture exposure for the reasons you mentioned. As long as there are humans and we are biological, food will always be a necessity. The food play as with the health REIT play seem to be strong trends for the next two or three decades.

      Now regarding that Christmas card for ADM’s chief, I’d like a little more price stability as that stock has really taken it on the chin the last few months. Thank you for stopping by and commenting.

  2. Hi Divhut, thanks for sharing this analysis of agriculture stocks. I do have a few that could be considered part of this group on my watchlist including ADM, POT, and AGU. I’d like to build up my consumer staples or healthcare holdings in January. I look forward to seeing how the low CAD will impact exports of commodities and agricultural products.

    Cheers
    Dividendniche recently posted…Recent Purchase CNRMy Profile

    • Hi Dividendniche,

      The agriculture space definitely has a lot to offer in terms of picking dividend paying companies. Everything from farm equipment to fertilizers to food processors and produce is available for potential purchase. Like you, I too want to build up my consumer staples and healthcare holdings but unfortunately I’m finding better prices and value in other sectors. It looks like many industrial names are coming down again. CAT and EMR look to be in play once again. Follow the value and sustainable yield and you should do well. Thank you for stopping by and commenting.

  3. I like the idea of investing in agribusiness and I have just joined you in ADM. Additionally have AGU and DE in my portfolio.
    Interesting new names here. I must admit that I’m not familiar with them. CALM’s dividend seems to be all over the place from quarter to quarter, and FDP’s initial yield is perhaps a little low for my taste. BG seems solid with 14 years of increasing dividend.
    Thanks for bringing up these stocks.
    Dividend Lord recently posted…3 Recent Buys – ABT, ADM, CSCO & 1 Sale – COPMy Profile

    • Hi DL,

      All solid names you mention in your comment. Investing in agriculture, while volatile in nature because of commodity pricing fluctuations, looks like a solid theme to buy into for the long term. CALM’s dividend largely depends on current egg pricing and when prices spike so do yields. At least for the near term, it looks like CALM will be paying a higher than average dividend yield. Of all the names mentioned, BG is probably the most stable of the bunch and the closest to ADM in terms of business characteristics. Thank you for sharing your thoughts.

  4. Hi DH,

    CALM actually has a variable dividend distribution policy. 1/3 of its quarterly earnings are given to shareholders as dividends. This last quarter it did well thus the spike in yield. the quarters below it did ok and the dividends went up and down. So that 4% might be a bit deceiving

    • Hi TBDI,

      Thank you for clarifying the variable dividend distribution policy of CALM. Actually, a lot of the financial sites still show the old distribution yield of over 8% so while it can be difficult to determine what the next payout will be, CALM nonetheless has a pretty reliable distribution policy each quarter. As I mentioned in the post, egg prices have spiked which, as you commented, resulted in higher dividends this last quarter. Such is the nature of a pure play commodity company. As always, I appreciate your comment.

  5. I like the concept but dislike the embedded risks. Commodity pricing (input and output), regulations, supply chain contamination, weather, supply and demand are too many variables to provide a moderate level of comfort. Even the farm REITs don’t (or haven’t) provided much consistency. Long AGU, could consider ADM or BG, would probably pass on the others.

    • Hi Charlie,

      I agree with your comments which is why the only exposure I have to commodity pricing is ADM and DOV. At best, those stocks can be seen as commodity proxies and not pure plays. For a long term dividend growth portfolio I would much rather own less volatile names. Thank you for stopping by and commenting.

        • Hi Gidi,

          Thank you for bringing SYT to my attention. First I have heard of this stock though it’s more related to agricultural chemicals which is a different business than ADM, BG and the like. Always love to learn about new companies that miss my own screens. Thank you for stopping by and commenting.

  6. Nice agricultural overview DivHut. We currently own some POT, and are considering adding a few more shares if the price drops further. Have to admit that BG appears appealing as well, the others not so much.

    Have a great holiday season!
    Team CF recently posted…Frugal-licious?My Profile

    • Hi TCF,

      Glad you enjoyed this overview. I always like to look at dividend stocks from various sectors and see if there is some hidden gem that might have been overlooked. We tend to buy all the same companies, for good reason, as long term dividend growth investors. I have seen POT make the rounds in recent weeks because of that very attractive yield. You seem to have a lot of company in owning that stock. Thank you for sharing your thoughts.

    • Hi DC,

      Both ADM and BG offer some compelling value and yield at current levels but as you mentioned, dividend history belongs to ADM by far. Being in identical businesses dragged down by the same commodity pricing headwinds, strong dollar and weakened demand from Asia and Europe has given rise to some good potential long term dividend growth picks. ADM is remaining on my radar for the remaining of this year along with other newly beaten down names EMR and CAT. Glad you enjoyed this overview. Thank you for commenting.

  7. Nice article, DivHut!

    I have BG on my watch list — it looks interesting to me! CALM and FDP are not dividend growth stocks. As pointed out above, CALM has a variable dividend distribution policy, while FDP has been paying the same dividend for 3 straight years.

    Currently, I don’t own ADM shares.

    Thanks for sharing!
    FerdiS, DivGro
    FerdiS recently posted…Goals for 2016My Profile

    • Hi FerdiS,

      Glad you enjoyed this little overview of some “farm” sector dividend stocks. My focus was on dividend payers and not necessarily dividend growers. The reality is that in this sector ADM is the standout in terms of being the stalwart dividend grower with BG following close behind. CALM is very, very dependent on the fluctuating prices of eggs which currently is skewing higher therefore higher current dividend distributions. ADM is still offering some compelling value and yield. The market these days appears to be on shaky ground once again which only means better values are popping up. EMR and CAT are making my screens once again. Who knows what the market will bring? All you can do is invest when better value and sustainable yield is being offered. Thank you for stopping by and commenting.

  8. Great post DivHut.

    I have been reading up on and following ADM and MOS. Your previous article on ADM certainly helped!
    As you said ADM is certainly a buy at these prices. It has a good yield and a payout ratio of less than 40% which is great for an income seeking investor!
    Money Grower UK recently posted…My first dividend paymentMy Profile

    • Hi MGUK,

      Thank you for your kind words regarding the post. As an income stock ADM is one of the best considering its very long track record of paying dividends as well as growing them at an impressive rate. It’s often said that the best time to buy a stock is when others are selling and while I have no idea what ADM will do in the future in terms of stock price, I do know that today it’s trading at much better values, prices and record high yield which is enough for me to nibble on the stock and slowly build a position. Based on current cash flow the dividend appears to be very safe which is my primary concern being a dividend-centric investor. Thank you for stopping by and sharing your thoughts.

    • Hi WS,

      Glad to have introduced CALM. While eggs are certainly considered a staple food found in pretty much every home, it is still a commodity that fluctuates dramatically in price and therefore impacts CALM’s revenue and dividend distributions directly. Still, it’s an interesting pick to consider though it cannot be considered a traditional dividend growth stock. I appreciate your comment.

  9. CALM is a very interesting stock and I have considered doing a write-up about the company. What is unique to them is that their dividend is based on a fixed percentage of earnings. I believe they pay out 33% of earnings to shareholders, so the amount is constantly changing and is tied to performance. The concept fascinates me because I haven’t really seen a policy like this elsewhere. I don’t know how I would feel about the volatility of the paycheck though, so I’m not sure I would invest in the company myself. Man I’m pumped you gave them a shout out in this article!

    Great concept and great article Keith! Have a great evening.

    Bert
    Dividend Diplomats recently posted…Target (TGT) Stock AnalysisMy Profile

    • Hi DD,

      If you are looking for dividend stability and a reasonable path for growth, then CALM may not be the perfect stock for you. It’s dividend payments are largely tied to their quarterly performance which is largely tied to egg prices. Like oil, egg prices can rise and fall quite dramatically resulting in larger or smaller dividend payments. It’s still an interesting stock and play though. Eggs are a consumer staple by every account and aren’t going away any time soon. CALM just doesn’t have that long term steady growth as a dividend payer if that’s what you seek. Of course, this is why we diversify and adding some dividend distribution variety can juice returns when egg prices are high. As always, I appreciate your comment.

  10. Hi Divhut,

    I don’t know any of these companies, there is only one diversified farm holdings company listed on the Australian Stock Exchange, but I’m definitely interested in getting a piece of it in the future. Australia has a big future in farming exports (could be big enough to replace our mining boom).

    One thing that has been making the news here lately is that a lot of Australia’s billionaires are buying up a lot of prime farmland – they can see what’s coming (someone has to feed the increasing world population, but in particular the rising Asian middle class population). Watch this space over time!

    Tristan

    • Hi Tristan,

      Feeding our growing world is definitely a long term theme that should provide tremendous growth over the next two or three decades. Agriculture/farming along with anything health related are probably the two biggest themes that’s worthy of an investment. There must be good reason to buy up all that prime farmland. As you already stated, the Asian middle class will have a very big appetite and food production will continually need to rise to feed that appetite. Happy to have introduced some new names to you in this post. Thank you for stopping by and commenting.

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