After a Big Dividend Increase, Deere Can Run

Deere is poised to profit from the extremely favorable tailwinds behind the agriculture industry, and proved it by significantly increasing its dividend.

May 31, 2014 at 3:20PM

Farm machinery maker Deere & Company (NYSE:DE) has a number of catalysts working in its favor. Most prominent of which is the undeniable tailwind at the back of the global agriculture industry. Populations across the world are growing rapidly, particularly in the emerging markets. It goes without saying that all these people need to eat. And, as emerging economies expand and millions of people enter the middle class, diets increasingly become protein-based.

To be exact, Deere estimates that the global population will swell to 9 billion by 2050, up from 7 billion currently. A full 70% of the world will be living in cities, and Deere management expects the world's growing, more urban-based population will enjoy higher living standards. In response, Deere will be relied upon to offer products and services that help meet all this demand for more food, fuel, and shelter.

Put it all together, and it's clear that Deere will benefit greatly from all this increased demand. Management proved as much by significantly raising its dividend. A company's dividend policy is a signal of how management sees the future shaping up. If Deere's recent financial performance and its dividend announcement are any guide, the company has a profitable road ahead of it.

In the right place at the right time
Deere will surely be able to capitalize on what's likely to be intense future demand for food. Global populations continue to soar, by tens of millions of people every year. And, since there's only so much land available for food production, the stress on crop yields virtually requires Deere's farming equipment and services. Plainly stated, Deere should do well simply because of the industry it operates in.

On the other hand, one of Deere's competitors in the heavy equipment space, Caterpillar (NYSE:CAT), is in the wrong place at the wrong time. Caterpillar is very reliant on the mining industry, which is proving very problematic. Prices for several precious metals, including gold and silver, have declined significantly for more than a year. This has resulted in a huge drop in global mining activity, and is weighing on Caterpillar's results.

Caterpillar reported flat sales in the first quarter, year over year. Caterpillar has struggled for some time, and will continue to struggle, because of the headwinds facing mining. Sales fell 16% last year, and the company expects difficulties to remain this year as well. The company's 2014 outlook of $5.55 per share in earnings would represent a 3% decline from last year. And, it's worth noting that Caterpillar's EPS fell 32% last year versus 2012.

Caterpillar's decline is moderating, but Deere is having no such problems. Deere grew revenue by 5% in 2013, after 13% revenue growth the previous year. Deere's profits jumped 15% last year, and 2013 represented Deere's third year in a row of record profits.

Deere sees great things yet to come
Not only has Deere done extremely well over the past few years, but it expects strong results for the foreseeable future. To demonstrate its confidence, Deere recently jacked up its dividend by 18%. This represents the 12th dividend increase in the last 10 years.

Along with the increase, Deere CEO Samuel R. Allen stated that his company is well-positioned to reap the rewards from the favorable agricultural trends over the long term. In addition, the dividend increase reflects his confidence in the company's ability to generate strong free cash flow going forward.

Foolish final thoughts
The world's population is expanding, and so are several under-developed economies, particularly in Asia and the Middle East. As a result, the world needs farming equipment and services, and Deere will be there to solve the complex agricultural needs across the globe.

Deere has executed strongly over the past few years, and will continue to do so. To demonstrate management's confidence in the future, the company raised its dividend by a hefty amount to reward shareholders. Deere's huge dividend increase is a great signal that the company has very profitable years ahead of it.

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

 

Bob Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers