Friday, August 26, 2016

Recent Sell: Deere & Company

I've parted ways with Deere & Company (NYSE:DE). The company has paid the same quarterly dividend of 60¢ per share for 9 straight quarters. While this does not constitute a dividend freeze, yet, I have some concerns about the company's fundamentals. Last week, DE announced Q3 earnings and the results reflect continued weakening in difficult construction and farming markets.

Last Friday, shares spiked up about 13% to over $87 per share after DE posted an earnings surprise and guiding higher for fiscal year 2016. While EPS (earnings per share) for Q3 of $1.55 beat the consensus forecast by 61¢ per share, revenue dropped 11% from the year-ago quarter. Aggressive cost cuts and share buy backs helped DE increase EPS by 2¢ from $1.53 in Q3 2015.

The market's response to DE's less bad news gives me an opportunity to exit my DE position at a slight gain. I'm happy to be out of this position – DE is now going for 22.7 times next year's earnings, a significantly inflated earnings multiple for a company with declining revenues.
When I initiated a position in DE (green circle), the stock was in a downward slide, but recovered nicely to set new 52-week highs near $100 per share. Then the bottom dropped out from under the stock in August 2015 when the company announced very weak Q3 results. The stock finally hit a low of $70.16 in January, then started a somewhat volatile recovery back to my selling price (red circle):

Trading Summary

2014-08-08
 Bought 30 shares of DE at $86.13 per share:
 $
2,583.90
2014-11-03
 Cash dividend on 30 shares:
$
18.00
2015-02-02
 Cash dividend on 30 shares:
 $
18.00
2015-05-01
 Cash dividend on 30 shares:
$
18.00
2015-08-03
 Cash dividend on 30 shares:
 $
18.00
2015-11-02
 Cash dividend on 30 shares:
$
18.00
2016-02-01
Cash dividend on 30 shares:
 $
18.00
2016-05-02
 Cash dividend on 30 shares:
$
18.00
2016-08-01
 Cash dividend on 30 shares:
 $
18.00
2016-08-22
  Sold 30  shares of  DE at $87.65 per share:
$
2,629.45
Capital gain:
$
45.55

Dividends received:
$
144.00

Commissions/fees/taxes:
$
3.00

Net gain:
$
189.55

The net gain is 7.21% on the original amount invested, or 4% annualized.

Closing my DE position removed $72 from DivGro's projected annual dividend income (PADI), which now totals $10,932.

Thanks for reading! Do you own shares of DE and, if so, are you still happy with the stock's prospects? Does it bug you that DE has not increased the dividend for nearly 2 years now?

10 comments :

  1. Hej Ferdi,

    I can imagine you want to part of the company. The future does not look all to bright with stable dividends and declining revenue.

    I think you did miscalculate a little. 30 x 87.65 is a sell value of 2629.50 minus your purchase price of 2583.90 gives a profit of 45.60. Add the dividends and you made 189.60. A bit more than you think right now. :)

    ReplyDelete
    Replies
    1. Hi Pursuit 2 Freedom -- you're either a math genius or you're spending a lot of time checking up on other people's blog posts! :-)

      Anyway, thanks so much for pointing out the miscalculation. Not only did I count the $3 commission twice, I stated the profit as a capital loss... I think its fixed now. (BTW, I received $2,629.45 into my brokerage account -- divided by 30 is not quite $87.65).

      About DE -- yes, I don't think things look too bright for DE and I'm glad I got out at a profit.

      Delete
  2. SFedi,

    I do not and never have owned stock of DE, but interested to see where it will go from here. Obviously, I have heard of the company and products, but never have done any real research on it. Nice to see how you got out and still received a decent gain after all of the dividends received. I am always interested to see what DGI are selling as we do not see too many sales for the most part.

    -TDM

    ReplyDelete
    Replies
    1. Hi TDM -- thanks for visiting and commenting. I was fortunate to get out of DE with a profit. I set an alert on yahoo finance for my wanted exit price and was surprised to see it pop up in my e-mail last Friday. Then I noticed the stock jumped 13%! On further review, I saw the "less bad news" reason, which convinced me it was time to move on...

      Cheers
      FerdiS

      Delete
    2. I just noticed that Mr. Buffett has been selling his shares as well.

      -TDM

      Delete
    3. I saw that -- some of it happened before the earnings announcement. I wonder if he continued selling after the stock price popped 13%!

      Delete
  3. Hi Fredi,

    I've been contemplating exiting my DE position since the recent rally in share price. I've been holding shares since 2013, and much like you, I am barely breaking even. Maybe I should put my $8,700 into Cisco instead. I don't follow the company, but with your recent assignment of 300 shares, it appears you like what their future has in store.

    When I bought DE, I almost bought LMT instead. It was trading in the high 80's and is now $244! And LMT's dividend keeps growing and growing. Sometimes, it's not about what you buy, but what you don't.

    Cheers

    ReplyDelete
    Replies
    1. I'm long LMT and I noticed the stock is down 9% in the past 10 days or so. Still a little expensive at P/E of 20.33, though. FV for me is around $224 -- I'd definitely be interested at $200. But that's a long way to go from $244...

      I think all investors can relate to your last sentence: "Sometimes, it's not about what you buy, but what you don't".

      About swopping DE for CSCO -- do your own due diligence and make sure CSCO is for you. One of my reasons for liking CSCO (not stated in my recent article), is that it is priced at a nice level for options trading.

      All the best!

      Delete
  4. I've been contemplating doing the same thing for much of the same reasons. I'm a bit more tolerant of stagnant dividends than others. But there's definitely lots of concerns going forward with no turn really in sight. DE is one of the holdings I really need to dig into over the next few days to see what management is saying because the numbers aren't pointing to anything special. I think they'll be able to hold the dividends steady until demand picks back up but it's one of those where is the volatility worth it. Since I'm not adding shares to take advantage of the volatility I keep leaning more and more towards no. Raising cash for other uses or better investment opportunities wouldn't be the worst thing in the world.

    ReplyDelete
    Replies
    1. Like you, I'm OK with stagnant dividends (I held INTC after a dividend freeze) and I'm still holding PNNT (I'll be writing about this one soon!). However, if the fundamentals sour one should be careful.

      Normally, I probably would have held onto DE until the dividend was frozen before deciding what to do. (Of course, DE might still raise the dividend just in time, who knows!). Anyway, I'm looking to position DivGro for options trading, so I'm consolidating a bit and DE looks weak enough to warrant me getting rid of it.

      Best of luck and I'd be curious to see what you decide to do...

      Take care
      FerdiS

      Delete

Contact Form

Name

Email *

Message *

Follow by Email