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Dividend Investing Stocks (Archived)

DE - Deere & co.

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the July 2015 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

Deere & co.

Deere & co. NYSE:DE is a large-cap farm and construction machinery manufacturer and its stock trades around $220 million per day. DE was founded in 1837 and has an established history of paying dividends and has a high dividend yield of around 3%.

The key fundamentals for DE are shown below.

Growth fundamentals for DE

YearRevenueEPS ROEDividendBook ValueEmployees
2004184002.85 22%0.5613.0046500
2005201003.05 21%0.6614.5047400
2006198003.71 23%0.8016.5046500
2007214004.14 25%0.9416.3052000
2008258004.88 31%1.0915.5056700
2009207002.06 18%1.1211.4051300
2010235004.46 30%1.2314.9055700
2011300006.89 41%1.5816.8061300
2012341007.90 45%1.8417.6066900
2013377009.53 34%2.0427.8067000

The fundamental data above shows that DE has broadly increased its revenue, earnings, book value and employees over the last decade. These are the characteristics of a growth stock. The dividends have consistently increased over the last decade and the stock provides a yield of around 3%. Thus DE is a growing company stock that also provides a high dividend yield.

Fundamental Analysis for DE:

The return on equity is strong and ranges from 20% to 40%. The profit margin (profit to revenue ratio) is reasonable and averages around 9%.

The current ratio (current assets to current liabilities) ranges from 1.8 to 2.4 which indicates that DE has a sufficient amount of working capital.

The debt ratio (long-term debt to tangible assets) averages around 2.0 which means that DE carries a significant amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The total ratio (total liabilities to total assets) averages around 80% which means that DEs total debt is 80% of its total assets.

The earnings growth for the 2014 fiscal year is projected to grow at 18% (based on the five year earnings growth trend). The revenue is projected to grow at 12% (based on the five year revenue growth trend).

The forward PE ratio is around 8 (calculated from the five year earnings growth trend rather than from forecast earnings). The forward PEG is around 0.5.

The current business valuation would drop to $140 with no earnings growth (with a 2.5% ten year Treasury bond yield).

DEs book value is around $28 and if DE does run into financial problems in the future this gives an idea of how far the stock price could drop.

The bankruptcy risk can be calculated using the Z-score. DEs Z-score is 4.5 which means DE is a low bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 19-Jun-2014 and this allows the reader to see how the stock performed over the next year.

DE had its 2014/03 quarterly results released prior to 19-Jun-2014 and this information is available for the analysis. The 2014 Q1 earnings showed a decline of 3% over the same quarter from a year ago (2013 Q1). The 2014-Q1 dividend is $0.51 for the quarter which is an 11% increase over the same quarter from a year ago (2014 Q1).

Overall the fundamentals are good with this large-cap stock which has a reliable history of paying a regular dividend. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in DE on the 19-Jun-2014 would give a purchase price of around $91.

The stock price performance is shown below in Chart 2. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 2. Stock chart with earnings for DE

weekly Chart DE

As shown in Chart 2. above, DEs gained around 3% over the next year including dividends. DEs 2014 annual earnings declined by 1% over the 2013 fiscal year. DEs 2014 dividends were $2.31 which is a 13% increase over the 2013 fiscal year.

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