Monday, February 29, 2016

Watch List: Archer Daniels Midland Co.

ADM is in the major diversified food industry. It provides transport, storage, and production of agricultural items in the United States and a portion internationally. In addition to the creation of vegetable oils, partially refined oils, and other nutrition products, ADM also operates fertilizer facilities and has a stake in the production of bio products with their corn processing segment. The company also dabbles in crop insurance and brokerage services.


Yield: 3.45%
Annual Payout: $1.20 (paid quarterly)
Payout Ratio: 46.2%

Dividend Growth:

ADM has been steadily increasing its dividend payments for the last forty years. In recent history, the raises have been substantial. In 2014 it raised its payment amount to $0.96/share which was a 26.3% raise from the previous year and then in 2015 it was raised again to $1.12/share which equates to a 16.7% raise. This shows a steady and secure rate of growth over time even after 38 years (at that point) of previous raises. 

Ex-Dividend Date:

Unfortunately, ADM just passed their ex-dividend date but it was on 2/11/2016 which would suggest the next quarter ex-dividend date would be about 2-3 months away from then. This is a negative as I would like to try to catch as many new stocks right before their ex-dividend date if possible to offset load in costs.


Currently, ADM trades at a fair price of $34.79/share. This is a 34.74% percent off of its 52 week moving average of $29.86-53.31. This would suggest that the price is extremely fair for the current rate. 

P/E Ratio and EPS:

At this time, ADM has a P/E ratio of about 11.63x which is well within our target ratio of 10-20 for our load in timing. In addition, their EPS is a very fair 2.99. I don't find any problems here with this stock and in fact, I like the picture its painting.


When I turn to the financials for ADM I get a little nervous. Balance and income were down in 2012 but they steadily rose into 2013. When it turned to 2014 the company took a turn for the worst and the balance sheet and income sheet then fell sharply. Income didn't turn as sharp as the balance sheet but it still took a fall all the way until 2015 revenue came in which again was lower. This makes me nervous because the business needs to figure out a way to turn the ship around and start heading in the right direction again. I'm assuming a lot of this has to do with the oil industry as they appear to be quite affected by it with the operations that they run on and with the ethanol that is pumped out. 

Final Review:

When the final picture is looked at from afar, it looks like ADM lays somewhere in the middle of companies available for purchase of equity. Their dividend is solid, their payout ratio is solid, their price is great, but the sheets leave a lot to be desired. The company has been around for a long time and a company as big as ADM doesn't get that way with idiots behind the helm. It just seems like they've strayed as of late when it comes to turning work into profits. With this said, even though they're on a discount, I think I'll be putting them on hold for awhile to see if they can turn things around in the near future. 

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