2016 is moving right along with triple digit moves in the DOW occurring almost every day. In a word, volatility is here to stay. Of course, as any long time dividend growth investor already knows, volatility tends to equate to opportunity. Opportunity to initiate new positions at better prices, value and yields and opportunities to average down on positions already in our portfolios. We are already very familiar with the sectors that have been beaten down in the last year including every energy related company, Canadian banks and cyclical industrial names moving towards a trough in the economic cycle. These are the opportunities being presented to us today. These are the volatile names that are currently sporting historically high yields and below average PEs. Of course, my take on these sectors and individual stocks within each comes down to one thing, dividend sustainability. As long as there is sufficient cash for dividends to continue to be paid and even better, raised, I’ll happily add to my positions at these lower prices and get paid to wait. With that being said, let’s take a look at my recent February purchase.
I have added to my taxable account 73.0000 shares at $32.36 for a total investment of $2,362.28 in Archer-Daniels-Midland Company (ADM). With this recent purchase my taxable account holdings in ADM now totals 174.4118 shares for a value of $5,942.21.
With ADM sporting a historically high yield of 3.52% along with a current PE of 11.4, which is well below it’s five year average PE of 15.6, I’ll be a buyer. The dividend is currently quite safe with a payout ratio of 44.9% which means 2016 payouts can continue with room for growth. In fact, ADM just raised their dividend 7.1% last week which marks four decades of dividend increases during all types of economic cycles. Just think of the inflationary and deflationary events of the last four decades, economic growth and recessions, wars and terror activities around the globe, record prices for commodities and crashes in prices along with double digit interest rates and a period of zero percent interest rates. ADM delivered.
Today, ADM is facing major headwinds in the form of low corn prices, a strong U.S. dollar and weak demand for its products from Asia and Europe. Earnings have and will continue to take a hit. Things are and will continue to look ugly for ADM. Of course, these are the times you want to load up on a dividend stalwart, when everyone else is turning their backs.
What do you think about my recent buy? Is ADM or another stock on your February watch list? Please let me know below.
Disclosure: Long ADM