Recent Buy – Archer Daniels Midland (ADM)

I added to my position in Archer Daniels Midland (ADM). Archer Daniels Midland is one of the world’s leading agribusiness that manufacturers and sells food essentials, processed agricultural products and value-added feed ingredients. Archer Daniels Midland is a dividend champion that has been paying dividends since 1927 and has been increasing dividends for 39 years in a row.
Corporate Profile (from FinViz):
Archer-Daniels-Midland Company manufactures and sells protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients; and processes oilseeds, corn, wheat, cocoa, and other agricultural commodities. The company’s Oilseeds Processing segment originates, merchandises, crushes, and processes oilseeds, such as soybeans and soft seeds into vegetable oils and protein meals. Its products include oilseeds products; crude vegetable and salad oils; margarine, shortening, and other food products; partially refined oils; oilseed protein meals; cottonseed flour; and cotton cellulose pulp. This segment also blends fertilizers; procures and processes cocoa beans into cocoa liquor, cocoa butter, cocoa powder, chocolate, and various compounds; and supplies peanuts and peanut-derived ingredients, and agricultural commodity raw materials. Its Corn Processing segment converts corn into sweeteners, starches, and bio products. Its products include sweeteners, starch, syrup, glucose, and dextrose; alcohol, amino acids, and other specialty food and animal feed ingredients; ethyl alcohol; corn gluten feed and meals, and distillers’ grains; citric and lactic acids, lactates, sorbitol, xanthan gum, and glycols; propylene and ethylene glycol; and sugarcane ethanol. The company’s Agricultural Services segment engages in buying, storing, cleaning, and transporting agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley; and reselling those commodities primarily as food and feed ingredients. This segment is also involved in the merchandising of agricultural commodities and processed products; origination and processing of wheat flour; and processing and distribution of formula feeds, animal health and nutrition products, and edible beans. Archer-Daniels-Midland Company also engages in futures commission merchant business. The company was founded in 1898 and is headquartered in Chicago, Illinois.
Recent Buy Decision:
Archer Daniels Midland Company not only operates and provides for one of society’s greatest needs – food, but also another facet of the economy’s staple resource – energy, in the form of ethanol and biodiesel, production of which has continued to rise over the years. The current estimates project increased projection of ethanol production over the next few years which may bid well for ADM.ADM is a well diversified agribusiness which operates at a global level. ADM is the largest exporter of soybean meal from Brazil and is planning to double its South American fleet of river barges to boost shipments of crops – in an attempt to move away from road transport, which led to port congestion and record delays last year in corn and soybean shipments. ADM tried to takeover Australia’s GrainCorp Ltd (AU: GNC), one of the world’s largest grain storage and logistical networks with storage capacities of up to 20 million tons. GrainCorp commands a network of rail and road transportation along with a strategic set of ports for export markets, especially the ever-growing appetites in Asia. The deal, where ADM offered $2B US, was blocked by the Australian government. How this will play out in the future remains an open question.

After a run-up in 2013 of 49.52%, the stock has retreated a bit. The stock is down 8.82% YTD 2014 with a P/E of 17.74 and a Forward P/E of 12.21. ADM is a dividend champion raising its dividends for 39 years in a row. The 5-yr Dividend Growth Rate (DGR) is 13% and the 10-yr DGR is 14.9%. ADM announced in Dec 2013 that it’ll be raising its dividends by 26% and also increasing its payout ratio from the historical 20-25 percent to a more lucrative 25-30 percent going forward. This payout ratio is still sustainable providing shareholders with increased cash flow from ADM’s operations.

When it comes to agribusiness, weather can play havoc on the shareholder returns. An unexpected season of drought may result in failed crop harvests and revenues. With the continued global climate changes, this threat remains ever-present. In addition, as the years go by, some of the food has seen prolonged falling prices as production has been abundant and the revenues decline over time. Coupled with the current thin margins currently at ADM, the company has to rely on revenue growth for greater profits.
A summary of the stock:
  • Symbol: NYSE: ADM
  • Quote: $39.57
  • 52-week Range: $28.19 – $43.99
  • P/E: 17.74
  • Forward P/E: 12.21
  • Debt/Equity: 0.35
  • Yield: 2.43%
  • 5-yr average yield: 2.30%
  • 5-yr DGR: 13%
  • 10-yr DGR: 14.9%
  • Graham Number: $38.51
  • Chowder Rule: 15.3
What are your thoughts on the future prospects of ADM?
Full Disclosure: Long ADM. My full list of holdings can be found here.

7 thoughts on “Recent Buy – Archer Daniels Midland (ADM)

  1. Hi R2R,

    ADM is on my watchlist at position 100 of 153.
    That is according to my calculation there are about 65 percent of companies that are better than ADM.

    ADM is a very good long-term investment, but I could buy some other companies at the moment…

    But who knows, what the markets do tomorrow… 😉

    I wish you the best with ADM!!!


    • Thanks for the comment, D-S.
      Im sure there are some other companies out there that are better valued at current levels. But after having invested a lot more in Financials (REITs), energy sector recently, I am avoiding those sectors before i return to them by investing in other sectors that need more assets in my portfolio. Ideally, I would’ve like to pick up something new in Industrials or Tech/Services etc, but for now, I like where ADM is at and decided to pick some up.

      How do you sort your list of valuation? I cant remember if you have a page on your website about the kind of valuation methods you use.


    • Hi R2R,

      I sort my watchlist as follows:
      “current dividend yield” + “Dividend growth”

      “Dividend growth” is calculated:

      average from:
      (Dividend growth 1 year + dividend growth 3 years + dividend growth 5 years).
      This average extrapolated to 10 years.
      The result is my “dividend growth”


  2. Good morning R2R,
    You said you were looking at ADM, when I wrote about it a couple months ago. I hope it’s good to you. My biggest fear with ADM is that the price of oil declines and governments loosen their biofuel mandates. That fear may be illfounded, but (as you said) ADM is heavily invested in biofuel production.

    Would you consider writing a “watch list post”, about what you’re watching and why? Have a great day

    • Hi Bryan,
      You are right that there is always some risk of the government pulling the plug on the biofuel mandates. The ethanol industry is propped up by government grants – through the corn subsidies etc. But corn has become so essential as a base product across the board…from animal feed to ethanol production to high-fructose syrup production used in every product on the market…it’ll be hard for the government to justify cutting the subsidies all out. The historical reasons and the heavy lobbying involved provide enough justification for investing in it. But if there is a cut, then ADM will be the biggest loser, as it contributes 12% of all ethanol produced in the US.

      I am compiling a list right now. I post my outlook and watchlist on the first of each month. Stay tuned 🙂


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