Is Archer Daniels Midland’s Dividend Safe?
Setting up a steady stream of income is a powerful wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Archer Daniels Midland’s dividend history and safety…
Archer Daniels Midland Business Overview and Highlights
Archer Daniels Midland is a $26 billion business. The company is based out of Chicago and it employs 31,600 people. Last year the company had $64 billion in sales and that breaks down to about $2 million per employee.
The company operates within the consumer sector and has a good credit rating (A) from the S&P. This allows Archer Daniels Midland to issue cheap debt to expand operations and pay dividends.
Earlier this year, the company announced that it acquired Ziegler Group, a European industry leader in natural citrus solutions. And last year, Archer Daniels Midland acquired Rodelle, a vanilla products company. These moves are helping the company build its business.
Archer Daniels Midland Dividend History
The company paid investors $0.54 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.34. That’s a 148% increase and you can see the annual changes below…
The compound annual growth (CAGR) is 9.5% over 10 years… but over the last year, the dividend climbed 4.7%. The slowdown in dividend growth isn’t a great sign. Although, Archer Daniels Midland still might be a good income investment. Let’s take a look at the dividend yield…
Current Dividend Yield vs. 10-Year Average
Archer Daniels Midland is an elite dividend aristocrat. It has raised its dividend payout for well over 25 years. And this history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is better for buyers… assuming it’s a sustainable payout.
The dividend yield comes in at 3.04% and that’s above the 10-year average of 2.91%. The chart below shows the dividend yield over the last 10 years…
Improved Dividend Safety Check
Investors often look at the payout ratio for dividend safety. They look at the dividend per share divided by the net income per share. So a payout ratio of 70% would mean that for every $1 Archer Daniels Midland earns, it pays investors $0.70.
The payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. So a better metric is free cash flow.
Here’s Archer Daniels Midland payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and over the last three years this metric isn’t too useful. The last reported year shows a dividend payout ratio of -13.4%. Although, Archer Daniels Midland’s board of directors still seems to be confidant. They’ve continued to raise the dividend.
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