Last update on 2024-06-27

Archer-Daniels Midland (ADM) - Dividend Analysis (Final Score: 7/8)

Comprehensive dividend analysis of Archer-Daniels Midland (ADM) with an impressive score of 7/8 based on an 8-criteria evaluation system.

Short Analysis - Dividend Score: 7

We're running Archer-Daniels Midland (ADM) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is important because it indicates the income return on an investment.

Archer-Daniels Midland's (ADM) current dividend yield of 2.4924% is lower than the industry average of 4.37%. Over the last 20 years, ADM's dividend yield has fluctuated between a low of 0.9907% in 2007 and a high of 3.2707% in 2018. Comparing this to the industry average, there was dramatic variance, with industry yields peaking at 27.98% in 2010 and dropping to 0.52% in 2007. During the last 20 years, ADM's dividend yield has consistently stayed below the industry average. This lower yield could be interpreted as ADM having a stronger focus on capital retention for growth or a more conservative payout approach. Investors seeking higher dividend income might find ADM's current yield less attractive compared to other industry peers. However, a lower yield does not always indicate poor company performance—it can also signify robust stock price appreciation, which is evident as ADM's stock price has risen steadily from $15.22 in 2003 to $72.22 in 2023.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate is a key indicator of a company’s financial health and its ability to generate shareholder returns. A growth rate higher than 5% demonstrates stability, profitability, and robust cash flow management.

Analyzing Archer-Daniels Midland (ADM)'s dividend growth rate over the past 20 years, we observe the 'dividendPerShareRatio' annually: [9.0909, 25, 13.3333, 17.6471, 15, 13.0435, 7.6923, 7.1429, 9.1667, 6.8702, 8.5714, 26.3158, 16.6667, 7.1429, 6.6667, 4.6875, 4.4776, 2.8571, 2.7778, 8.1081, 12.5]. The average value of 10.7028% indicates a healthy pattern overall, except for year-on-year variances. This surpasses the threshold of 5%, suggesting a positive trend in dividend growth, reflecting ADM's capability to repurpose profits into shareholder returns.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio lower than 65% indicates a sustainable dividend policy and the financial health of a company. A lower ratio means the company retains more earnings for growth, while a higher ratio indicates a potential financial strain.

Archer-Daniels Midland (ADM) has maintained an average payout ratio of 32.22% over the past 20 years, which is significantly below the 65% threshold. This low payout ratio is an excellent indicator of the company's financial health and dividend sustainability. With the highest annual payout at just 56.55% in 2019 and as low as 13.75% in 2007, ADM has consistently retained a substantial portion of its earnings. This provides the company with more room for reinvestment in growth opportunities, paying down debt, or weathering financial downturns. Hence, the trend of maintaining a payout ratio much below the 65% threshold is highly favorable and aligns with a prudent and sustainable dividend policy.

Dividends Well Covered by Earnings?

Dividends well covered by earnings indicates that the company generates enough profit to meet its dividend payouts. A higher ratio suggests financial stability, making it a crucial metric for income-focused investors.

Examining Archer-Daniels Midland's (ADM) earnings per share (EPS) and dividends per share (DPS) from 2003 to 2023, it is clear that ADM has consistently managed to cover its dividends with its earnings. The ratio of dividends covered by earnings fluctuates but remains relatively healthy. For instance, in 2023, the coverage ratio stood at 0.279, indicating that the company’s earnings per share are indeed enough to pay out the dividends. This is a positive trend, though ideally, a ratio closer to 0.5 or higher would suggest greater robustness. Yearly fluctuations, such as in 2021 (ratio of 0.308) and 2007 (ratio of 0.137), underline variability but do not fundamentally undermine the company’s capacity to cover its dividend obligations. Therefore, this trend can be considered good though with room for stability improvement.

Dividends Well Covered by Cash Flow?

Explain if dividends are well covered by the cash flow as it indicates the company’s ability to sustain its dividend payouts.

The ratio of dividend covered by cash flow for Archer-Daniels Midland (ADM) varies considerably over the years. A ratio below 1 indicates the dividends are not fully covered by the cash flow, while a ratio above 1 means that cash flow sufficiently covers dividends. Observing the numbers: - High ratios such as in 2016 (1.182) and 2017 (0.628) show good coverage. - But there are years with negative and critical ratios, notably 2004 (-0.366), 2007 (-0.314), 2008 (-0.063), 2011 (-0.110), 2018 (-0.135), 2019 (-0.126), and 2020 (-0.252). A negative ratio indicates that the company is paying out more in dividends than it generates in free cash flow, which could pose sustainability issues. - The latest data shows 2022 (0.416) and 2023 (0.329) are below 1 but not in negative territory, suggesting dividends are partly covered by cash flow. Overall, the inconsistent ability to cover dividends with cash flow reflects both strong and weak periods, making ADM's dividend coverage a point of concern at times. Consistency and stronger cash flow generation are imperative for more promising dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends signify a reliable income, integral for investors depending on dividend income.

Looking at Archer-Daniels Midland's (ADM) dividend per share history over the past 20 years, the data shows a consistent improvement from $0.24 in 2003 to $1.80 in 2023. Over two decades, the overall trend has been upward, signaling strong financial health and commitment to returning value to shareholders. There is no evidence that the dividend has dropped by 20% in any given year, which portrays ADM as a stable and reliable choice for income-seeking investors. The absence of significant drops in dividends strengthens confidence in ADM’s ability to sustain and grow its dividend payouts. This trend is unequivocally positive, indicating robust financial management and predictable income for long-term investors.

Dividends Paid for Over 25 Years?

Explanation of why paying dividends for over 25 years is important to analyze.

Archer-Daniels Midland (ADM) has consistently paid dividends over the past 25 years, with a progressive increase in dividend per share from $0.1666 in 1998 to $1.8 in 2023. This commitment to rewarding shareholders is a positive indicator of the company's financial health and its ability to generate consistent cash flow.

Reliable Stock Repurchases Over the Past 20 Years?

investors consider the reliability of stock repurchases to gauge a company's commitment to returning value to shareholders.

Archer-Daniels Midland (ADM) has shown a commitment to stock repurchases over the last 20 years. Examining the trend, we see that the number of shares has generally reduced, from 647.7 million in 2003 to 541 million in 2023. Notably, the average percentage decrease in shares repurchased over the 20 years stands at -0.8719%. This trend is generally good as a decreasing share count signals that the company is consistently working to return value to shareholders by buying back its shares. A total of 15 out of the last 20 years have seen share repurchases, highlighting ADM's commitment in this aspect. Overall, ADM demonstrates a strong and reliable repurchase strategy that benefits shareholders.