Dividend Farming Scorecard: Deere & Co. (DE)

In January I analyzed General Dynamics (GD) and United Technologies (UTX) as potential additions to my Dividend Farm.  I did so because I was looking for another manufacturer to beef up that segment of my portfolio.  GD and UTX were under review because both are members of the CCC and they are aerospace firms in an industry in which I’m partial.  However, I’m not partial to the extent I’ll make a poor purchase decision; at least not intentionally.

The pictures painted for GD and UTX, although not perfect, aren’t terrible and left me feeling I needed to keep an eye on each.  Consequently, I thought I’d better also review Deere & Company (DE) since it’s the only holding I own that I would consider a manufacturer.

The table below provides a summary of factors I consider as applied to Deere & Company on February 4, 2019.  Laying out my analysis like this helps me quickly benchmark against my target metrics and compare this firm to alternatives.

FACTOR	METRICS	COMPANY
CCC List	Champion	N/A
Current Yield	4.0%	1.85%
Company Profile	Red Flags	Tractors, Forestry, Finance
Industry Leadership	Top 10	#1
Market Cap	$10 B+	$52.6 B
P/E	< 20	22.7
P/B	< 2	4.6
Debt / Equity	< 1	8.8
Dividend History	25 Years	Cuts 1995, 2007
12 Month Price Range	Lower Half	Top 20%
Dividend Payout Ratio	< 75%	35.6%
Portfolio Weight	Slightly Over	Under

The first column lists factors I review.  The middle column lists target benchmarks for those factors.  The last column highlights Deere’s metrics so I can see how well they align with my benchmarks.

CCC List: The DRIPinvesting.org web site provides the list of Champions, Contenders, and Challengers which is where I normally start.  It turns out that DE is not currently listed as it experienced dividend cuts in 1995 and 2007, per Yahoo Finance, as well as several years since then in which the dividend was static i.e., no growth.  This is definitely not a good start for a current holding; makes me wonder if other factors were highly favorable when I first acquired it. 

Current Yield:  DE’s yield is at 1.85%.  It sports a $3.04 annual payment having tripled its payout since the 2007 cut, but it’s less than half my desired target yield target.

Company Profile:  As a Dividend Farmer, I do like the field in which Deere operates.  Headquartered in Illinois, producing great agricultural equipment, some of which I operated as a young man; forestry gear, and financing for all, it appears to participate in a steady, if unspectacular segment.  I found no significant red flags.

Industry Leadership:  I’m interested in companies in the Top 10 within their industry.  Statista listed DE as the largest producer of agricultural equipment in the United States.  That’s good.

Market Capitalization:  DE stands at $52.6 B which is more than sizable enough for comfort.

Price to Earnings:  The trailing P/E is at 22.7 which is more than 10% above the upper end of my target range.

Price to Book:  P/B is more than twice my intended benchmark.

Debt to Equity:  D/E is nearly 9x over my preferred point.  That’s definitely concerning.

Dividend History:  Although it’s got a long history of dividend payments, 2 cuts in the past 25 years aren’t a good sign for a long-term buy and hold Dividend Farmer.

Price Range:  The price is on the high side of its 12 month trailing range coming in at about the 80^th percentile.  It’s not a bargain at the moment.

Payout Ratio:  The payout ratio is favorable at 35.6%.  DE has raised its quarterly dividend payment from $0.60 to $0.76 since last March.  This represents growth approaching 27%, which is fantastic.  Although the payout ratio can obviously support additional increases, that kind of growth is unlikely to be sustained.

Portfolio Distribution:  As mentioned earlier, DE is my only manufacturer representing the second smallest sector in my portfolio.

Analysis  

DE isn’t looking good right now missing on 7 of my twelve benchmarks shown in red in the table.  It certainly wouldn’t be an addition today given its state.  Although I don’t want to make a rash decision and dump a stock that may do well in the long run, I need to consider whether or not it’s worth the hold.  I’ll stack it next to GD and UTX to see how they compare.  Who knows, I might get to add aerospace to my holdings yet.  Not that doing so is the deciding factor, but it’s nice to get extra frosting with the dividends once in a while.   

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.