Deere & Co. (DE) in an effort to enhance value for its shareholders hiked its quarterly dividend by 6 cents to 41 cents. This translates to a 17% increase from the prior dividend of 35 cents. The increased dividend will be paid on August 1, 2011, to stockholders of record on June 30, 2011.
Deere has a consistent track record of paying quarterly dividends and has been increasing its dividend every year since 2004, supported by its cash position and its ability to generate healthy cash flow. The company has increased its dividend nine times in the span of 2004 to 2011, bringing up its dividend of 11 cents to the current level of 41 cents, reflecting a total dividend growth of 273%.
The last dividend hike came in December when the company boosted its quarterly dividend by 5 cents to 35 cents, a 17% increase. Since 2004, the company has returned approximately $2.9 billion to its shareholders through dividends.
Deere’s current annualized dividend yield of 1.97% edges past the 1.73% yield of its nearest peer Caterpillar Inc. (CAT). Deere’s dividend payout ratio of 22.01% is less than Caterpillar’s 29.88%. Further, Deere commands industry leading net margins, with its trailing twelve-month net margin of 8.55% surpassing Caterpillar’s 8.02% and the industry margin of 6.78%.
We appreciate Deere’s focus to create long-term value for its investors. Deere’s strong cash flow positions the company well to fund future growth opportunities as well as return cash to shareholders.
Given Deere’s cash reserve of $3.95 billion we believe it has a sufficient liquidity source to meet funding needs. Deere can thus continue to pay dividends alongside resuming share repurchases or paying down debt, actions that would benefit its bottom line.
In a separate development, Deere announced plans to build a factory to manufacture engines for John Deere equipment built in China for a total investment of $60 million. The factory will be located in the Tianjin Economic and Development Area, in which Deere already has other facilities. The factory is expected to start production in late 2013.
This will be Deere’s sixth engine factory worldwide adding to the list of engine factories in Argentina, France, India, Mexico, and the United States. These factories are strategically located to support facilities that manufacture John Deere's agricultural, construction and forestry equipment.
Deere seeks to grow its competitive position in the agricultural equipment business as well as in the construction and forestry segment in the emerging and high potential markets such as Brazil, China, India and Russia. Deere’s consistent investment in new products and expanded global capacity help create a solid footing for the future.
Given increased global demand for food, shelter and infrastructure, we believe the long-term outlook for Deere remains strong. However, in the near term, margins are expected to be constrained due to elevated raw material costs and increased R&D costs associated with rigorous global emissions standards. The company currently retains a Zacks #3 Rank (short-term Hold recommendation).
Illinois-based Deere & Co. is engaged in the production and distribution of agricultural and forestry equipment, construction equipment and engines worldwide. The company sells products in the U.S. and Canada through branch offices as well as through distributors and dealers for the resale of products internationally. Deere also competes with CNH Global NV (CNH) and Kubota Corporation (KUB).
CATERPILLAR INC (CAT): Free Stock Analysis Report
CNH GLOBAL NV (CNH): Free Stock Analysis Report
DEERE & CO (DE): Free Stock Analysis Report
Be the first to comment