Recent Sell – ADM, SBUX


A quick update on three sales in my portfolio. Both companies below are still great companies to hold for the long haul, and I may consider re-initiating a position in them during the next cycle. In addition, part of the reason for also selling is to move some of these funds towards passive investing as I want to reduce my number of holdings and focus on a smaller group of companies.

Archer Daniels Midland (ADM)

A dividend champion that I’ve held since 2013. The food/commodity business is a tough sell and there are some very good bullish and bearish cases for holding this company. However, the company has continued to increase payout ratios over the past few years as it wants to grow its dividends, just for the sake of record. This is not the right move imo, and I will look for a better home for my investment dollars.

Total profit (including dividends): 32.8%. 

Holding period: 4.5 yrs

Starbucks Corp (SBUX)

This is one of those investments that has traded sideways for me. With the founder Howard Schultz stepping down from CEO position, the spark has gone from this stock. However, the company is still functioning pretty well. I am not as confident in the growth story of this company as I was a couple of years ago. I have decided to exit this position, esp this late in the market cycle and re-evaluate in coming months/years.

Total profit (including dividends): 9.2%. 

Holding period: 2 yrs

What do you think of these sales? Let me know with a comment below.

Archer Daniels Midland Dividend Increase

Archer Daniels Midland

Archer Daniels Midland (ADM) announced a 7.14% increase in its cash dividend. The quarterly cash dividend will increase from $0.28 to $0.30 per share and payable on Mar 8, 2016 to shareholders on record as of Feb 16, 2016.

Archer Daniels Midland is a dividend champion and this is the 41st consecutive annual dividend increase. The annual dividend rate goes up from $1.12 to $1.20. Yield going forward based on today’s closing price is 3.71%.

From the press release statement:

Juan Luciano, ADM chairman and CEO said “In 2016, our balanced capital allocation framework remains a priority, including a quarterly dividend rate increase of 7 percent to $0.30 per share, and share repurchases of between $1.0 billion and $1.5 billion, subject to strategic capital requirements. With a strong balance sheet, we will also remain opportunistic for investments, especially bolt-ons, in this more challenged macro environment.”

Our portfolio consists of 80 shares of Archer Daniels Midland, which increases our annual dividend from $89.60 to $96.00, an increase of $6.40.

Archer Daniels Midland (ADM) Dividend Increase

Archer Daniels Midland
Archer Daniels Midland (ADM) announced a dividend raise from a quarterly amount of $0.24 to $0.28, an increase of 16.6%. The new dividend is scheduled to be paid Mar 10, 2015 for shareholders on record at the close of business on Feb 17, 2014. In addition, ADM announced that the company is targeting $1.5 to $2.0 billion of share repurchases in 2015.

From the earnings release statement:

Fourth Quarter 2014 Highlights

  • Adjusted EPS of $1.00 excludes approximately $0.14 of asset disposal gains, $0.09 in benefits related to biodiesel tax credits attributable to the first three quarters of the year, $0.09 in noncash pension settlement charges, and other net charges totaling $0.06.
  • Oilseeds Processing decreased $107 million from an exceptional comparator, with record profits from North American soybean crushing and strong results from soybean crushing in Europe
    more than offset by weakness in South American results.
  • Corn Processing decreased $31 million with rising net corn costs through the quarter partially offset by strong ethanol results.
  • Agricultural Services increased $234 million amid strong margins, record volumes and good execution in the U.S., and improved international merchandising.
  • Trailing four-quarter-average adjusted ROIC was 9.0 percent, up 240 basis points year over year and 260 basis points above annual WACC of 6.4 percent.
  • During the fourth quarter, the company repurchased 9.4 million shares. During 2014, ADM returned more than $1.8 billion to shareholders through dividends and share repurchases.

Dividend Declaration and 2015 Capital Plan

  • ADM’s Board of Directors has declared a quarterly cash dividend of 28.0 cents per share on the company’s common stock, an increase of approximately 17 percent from the prior quarterly rate, resulting in estimated annual dividend payments of $0.7 billion in 2015.
  • The dividend is payable on March 10, 2015, to shareholders of record at the close of business on Feb. 17, 2015. As of Dec. 31, 2014, there were 636,704,061 shares of ADM common stock outstanding.
  • The company has targeted $1.5 to $2.0 billion of share repurchases in 2015, subject to strategic capital requirements.
  • The company expects 2015 capital expenditures of between $1.1 and $1.3 billion.
The Agricultural Services team executed well to capitalize on strong conditions, while international merchandising continued to show year-over-year recovery,” said ADM Chief Executive Officer Juan Luciano. “In North America and Europe, Oilseeds showed strong year-over-year growth, offset by weaker results in South America. Looking ahead in North America and Europe, solid crush margins and export opportunities have carried into the first quarter. Market conditions in South America Oilseeds should improve with the large harvest, and we are working toward higher returns throughout 2015 in this key geography. While U.S. ethanol demand was seasonally strong, boosted by the domestic response to lower gasoline prices, high industry production has built excess inventories. Margins in this industry should remain challenged until supplies are better aligned with demand. We will continue our work to optimize cost and product mix in the Corn business to maximize profitability.

My portfolio consists of 80 shares of Archer Daniels Midland, which increases my annual dividends from $76.80 to $89.60, an increase of $12.80.

Archer Daniels Midland – Shareholders Can Expect Bigger Pay Raises

Archer Daniels MidlandArcher Daniels Midland (ADM) is one of the largest agricultural processors in the world. The company has an impressive track record of rewarding shareholders with growing dividends for 39 consecutive years. With the next dividend increase announcement imminent, investors can expect another great pay raise as the company has indicated raising its payout ratio. The revenues, earnings, cash flow, dividends are all expected to grow in the coming years. Investing in a company like ADM is a no-brainer and the stock is currently fair-to-undervalued.

Continue reading the full analysis of Archer Daniels Midland.


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.