Dividend Farming Scorecards: DE, GD, UTX

Over the past 30 days I’ve reviewed General Dynamics and United Technologies as possible adds to the Dividend Farm while updating the status for a current member of my portfolio, Deere & Company.

The table below summarizes how the three compare.  Needless to say, DE would not be considered a new component to the portfolio given its performance relative to my benchmarks or the alternatives.  The question before me is whether to switch the horse I own (DE) for another (UTX or GD) to continue the race.

Factor	Benchmark	Deere & Co	United Technologies	General   Dynamics
CCC List	Champion	N/A	Champion	Champion
Current Yield	4.0%	1.85%	2.45%	2.4%
Company Profile	Red Flags	No issues	Treasury Stock?	No issues
Industry Leadership	Top 10	#1	#3	#4
Market Cap	$10 B+	$52.6 B	$99.9 B+	$42.7 B
P/E	< 20	22.7	17.8	15.4
P/B	< 2	4.6	2.5	3.6
Debt / Equity	< 1	8.8	1.1*	2.1
Dividend History	25 Years	Cuts 1995, 2007	25	27
12 Month Price Range	Lower Half	Top 20%	Top 10%	Bottom Quartile
Dividend Payout Ratio	< 75%	35.60%	44%	35.30%
Portfolio Weight	Slightly Over (Max)	Under	Under	Under
DATES		2.4.19	1.25.19	1.06.19

The first columns list factors and target benchmarks.  The remaining columns highlight metrics of the subject companies so I can see how well they align with my benchmarks and to each other.

CCC List: UTX and GD are both Champions on the DRIPinvesting list.  However, Deere is lagging due to multiple cuts and periods of static dividend payments.

Current Yield:  The yield for DE is nearly 65 basis points below the others which are also below my target.  However, DE’s yield as shown is based upon current price.  It’s possible the price of DE was far lower when I bought it in which case the dividend increases since may produce a yield on cost likely to be higher; possibly much higher than one might think at first glance.

Company Profile:  None of the firms have overly concerning profiles, but research remains to be done around Treasury Stock use and how it may affect other metrics.

Industry Leadership:  All three firms easily fall into my desired industry leadership range with DE squarely atop the agricultural equipment segment. 

Market Capitalization:   With market caps for each between $43 B and nearly $100 B there’s no shortage of size to complain about.

Price to Earnings:  P/E is where DE starts to run aground.  Not only does it lag GD and UTX, it’s above my target metric as well.

Price to Book:  P/B for DE is running well above my comfort level and it is one or two multiples above the alternatives.

Debt to Equity:  D/E for DE is currently far beyond my desired target and not in a good way.  It’s also well beyond that of GD and UTX depending on how you view the Treasury Stock component within UTX.

Dividend History:  DE’s dividend growth history is considerably behind that of the other firms, but it’s showing signs of life with recent increases.

Price Range:  DE and UTX are near the top of their trailing twelve month (TTM) range in which case they won’t be found in the bargain bin.

Payout Ratio:  DE’s payout ratio offers room for considerable growth as do UTX and GD.  It will be interesting to see if DE continues its recent run of large dividend increases.

Portfolio Distribution:  From a portfolio distribution perspective all three firms would be helpful adds to one of my smaller segments.

Analysis

If I were choosing a new purchase among the three right now, DE would quickly fall out of contention.  I’d be looking at UTX or GD as the flavor of the day.

   

With that said, the cost basis for my DE holding as reported by my brokerage is $88 and change.  The result is a yield on cost or effective yield at roughly 3.4%; nearly a full percentage point above the alternatives.  From a switching perspective, I’m asking myself if losing that extra point of yield is worth gaining better business metrics or if I should hold the line and see whether DE can get its house in order.

Another consideration is the run-up in price and dividend payout.  DE has nearly doubled in value since I purchased it.  Is it topping out?  The dividend payment has increased by 26% or so in the past year with plenty of headroom.  Will the big increases continue?  DE’s next dividend date is in March.  Maybe I hold for a month to see what the dividend increase, if any, may be?  If it’s another 10%+ bump it could be worth holding despite the currently unfavorable financial metrics.

I’ll ponder the situation before I move one way or another.  Stay tuned!

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions expressed here should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.