Saturday, August 9, 2014

Recent Buy: DE

Aug 8, 2014: Bought 30 shares of DE at $86.23 per share.

Founded in 1837, Deere & Company (DE) is engaged in the production and distribution of agricultural and forestry equipment, construction equipment and engines, worldwide. A credit subsidiary, John Deere Capital Corporation, is one of the largest equipment finance companies in the United States with more than 2.4 million accounts.

DE is a Dividend Contender with a streak of 11 years of dividend increases. It pays quarterly dividends in February, May, August and November. The current dividend is 60¢ per share, so starting yield on cost is 2.78%. DE's 5-year dividend growth rate is 13.43%.

The stock has outperformed the S&P over the past 10 years by a healthy margin, as is evident in the graph below. It suffered from very heavy selling when the markets tumbled in 2008. The 5-year Beta of DE averages 1.26.


Analysis of DE


My fair value estimate of DE is $95.50, so this buy resulted in a discount to fair value of 9.71%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.


DE meets the requirements of the Chowder Dividend Rule, which requires that the sum of a stock's dividend yield and its 5-year dividend growth rate exceed 12%. For DE, the sum is 16.25%.

The only criterium that DE does not meet is having a Debt/Equity ratio of less than 0.50. For DE, the ratio is rather high at 3.40.

Based on these statistics, DE earns 6 out of a possible 7 stars: (*******)

The following chart shows DE dividend payments and earnings per share over the last 7 years. DE has grown its dividend steadily and the EPS growth similarly is trending up, even though earnings were unimpressive in 2010 and 2011. in :


Other ratings for DE


 Zacks Rank  3-Hold
 S&P Capital IQ's Stock Report (*****) Sell
 Thomson Reuters StockReport+   (8/10) Positive 
 MorningStar Rating (*****)
 The Motley Fool's CAPS Rating  (*****)

Concluding Remarks


DE is the top candidate in the Industrials sector on my August dashboard of dividend growth candidates.  It is my 4th Industrials sector holding and the 34rd holding overall.

DE's long term future looks bright given the rising global population and the need for increased yields and farm productivity. In the near term, though, farmer sentiments towards capital purchases could limit DE's earnings. In February this year, the U.S. Congress passed a new bill that replaces direct subsidy payments with an insurance-based system, providing farmers with a safety net only if prices fall too far. The impact of this change could lead to a reduction of equipment purchases in the near term.

DE expects worldwide sales of construction and forestry equipment to increase by about 10% in 2014. Furthermore, DE is increasing its manufacturing footprint overseas in markets like Brazil and India. Especially in Brazil, the construction equipment market is expanding rapidly as the country continues to grow as an exporter of agricultural commodities.

DE has an impressive record of share repurchases. Over the last decade, the number of outstanding shares has declined by 127 million. Last December, DE announced an expansion of the current repurchase program by $8B. With its dividend growth rate of 16% over the last 5 years, I think DE is an excellent addition to DivGro.

30 shares of DE adds $72 of expected dividend income, increasing DivGro's projected annual dividend income to $4,651.06.

Thanks for reading! Are you planning to buy shares, or do you own shares of DE already?

16 comments :

  1. Replies
    1. I agree! Congratulations on you buy. Hope this will turn out to be a good one...

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  2. Nice buy DivGro...we picked up a few shares recently too. Decent yield, low payout ratio, nice growth potential...definitely many great reason to own Deere right now! :) AFFJ

    ReplyDelete
    Replies
    1. Thanks for stopping by, AFFJ! I particularly like DE's dividend growth rate. And the last increase was 18%! Getting in at this level is good; with future dividends and buybacks, I'm hoping DE won't disappoint...

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  3. I'm looking to buy some more DE but I'm hoping for a bit lower price. Hopefully $83-84 area so I can average down better with just one purchase.

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    Replies
    1. Hi PIP -- I notice you first purchased shares in June when the price was slightly higher. Picking more up around $83-84 would certainly be helpful!

      My fair value evaluation is $95.50, so I'm happy that I got in at a discount of about 10%.

      Cheers!

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    2. I nominated you for a Liebster Award. Check out my post for my questions for you. Hope you'll keep it going.

      http://www.passive-income-pursuit.com/2014/08/liebster-award-nomination.html

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    3. Thanks, PIP! I'll post my answers soon!

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  4. What a great Trade. I've also bought shares of Deere earlier this year. For the time being, it's performance is nearly flat but I know what I've bought. My number of shares was not as high as yours because I thought Deere could loose some ground despite the cheap valuation - the P/E level is below 10. If the stock falls again, I will add some shares. DE is definitly the best farm equipment maker!

    By the way, I've put your blog into my blogroll. My readers should also benefit from your great ideas. Be sure, I will come back soon :-)
    Best Tom

    ReplyDelete
    Replies
    1. Hi Tom -- thanks for visiting and commenting on DivGro!

      Yes, I agree buying DE at this level is a great trade! This month, I had to choose between PM and DE -- and I just couldn't choose. So I decided to make a bonus deposit of $1,000 and buy both at about 10% discount to fair value!

      Thanks for adding DivGro to your blogroll! I have a short blog roll on my home page, but I'm inspired by your comprehensive blogroll -- perhaps I'll add a separate blogroll page!

      Take care and visit again soon!

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  5. Ferdi,

    Nice buy! And I see you've been busy with both this buy and PM lately. Awesome! :)

    I also added to my DE position recently. I have an upcoming article on that. Glad to be a fellow shareholder!

    Best regards.

    ReplyDelete
    Replies
    1. Hi Dividend Mantra!

      Yeah -- I couldn't choose between PM and DE, so I bought both! :-)

      Lately, I've been buying one new holding per month, but neither of these two, discounted by about 10% to fair value, could be passed up!

      Cheers!

      Delete
  6. Nice buy, DE looks very attractive right now and I just might follow suit. :)

    ReplyDelete
    Replies
    1. Hi Tawcan -- thanks for stopping by. Of course, I agree with you -- in my estimation, DE is about 10% below fair value. Another blogger (Dividend Mantra) thinks it is worth $105 right now. Good luck!

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  7. DE is a solid long term purchase. I know DividendMantra picked some up as well and DE is a staple among many DGI bloggers. Love the yield and long term dividend history of this one plus DE has some good growth prospects going forward. Thanks for sharing.

    ReplyDelete
    Replies
    1. Yes, I particularly like that DE continued raising their dividend even in those years when earnings fell off the table (2010 and 2011). This fact makes me confident about DE's future as far as continued dividend payments and raises are concerned. If they maintain there dividend growth rate of about 13%, yield on cost will rapidly rise.

      Cheers!

      Delete

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