Last update on 2024-06-27

Deere (DE) - Dividend Analysis (Final Score: 7/8)

Assess the performance and stability of Deere (DE) dividend policy using an 8-criteria scoring system. Final Score: 7/8.

Short Analysis - Dividend Score: 7

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

Deere (DE) Dividend Policy has an overall positive score of 7 out of 8 based on 8 different criteria. While the dividend yield is slightly below the industry average, Deere has shown a strong average annual growth rate and a low payout ratio, indicating financial prudence. Deere's dividends are well covered by earnings and cash flow, ensuring sustainability. The company has a record of stable dividend payments for over 25 years, and shares have been consistently repurchased over the past 20 years, adding value for shareholders. Despite some fluctuations in dividend ratios and a decreasing dividend yield trend after 2016, the overall data exhibit a solid commitment to returning value to shareholders through dividends and stock repurchases.

Insights for Value Investors Seeking Stable Income

Investing in Deere (DE) could be worth it for long-term dividend-focused investors, especially those looking for stable and dependable returns. While the dividend yield is not the highest, the company's consistent dividend payments, stock buybacks, and prudent financial management suggest strong fundamentals that can support both growth and income in the long run. It may not be ideal for those seeking immediate high yield dividends, but for long-term growth and stability, it is a compelling option.

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?

Why is Dividend Yield an important metric in financial analysis?

Deere’s current dividend yield of 1.3304% is lower than the industry average of 1.67%. Over the past 20 years, Deere's dividend yield peaked at 3.1467% in 2015 and has generally fluctuated, showing a decreasing trend after 2016. This drop might suggest that despite higher stock prices closing at $399.87 in 2023, dividends haven't increased proportionally, potentially making the stock less attractive to income-focused investors.

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

The Dividend Growth Rate is a crucial indicator of a company's financial health and its ability to return value to shareholders over time. A growth rate exceeding 5% over two decades usually suggests a firm commitment to enhancing shareholder wealth through consistent dividend increases.

Evaluating Deere's (DE) dividend per share ratio over the past 20 years, we observe significant fluctuations. The average dividend ratio stands at approximately 12.97%. Despite this inconsistently high ratio, there are years with zero dividends (e.g., 2003, 2016, 2020). While there are occasional spikes (e.g., 2004 at 27.27%, 2011 at 28.46%), sustainability factors should be considered. On a general note, the volatile nature hints toward potential risks in relying on consistent dividend growth despite the overall averaged figure suggesting a commitment to high dividends.

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

A payout ratio for a company is the portion of earnings paid out as dividends to shareholders, typically expressed as a percentage. An average payout ratio below 65% indicates financial prudence, ensuring the company retains sufficient earnings to invest back into the business, weather economic downturns, and sustainable dividend policies.

In the last 20 years, Deere (DE) has consistently maintained a payout ratio well within the threshold of 65%, with an average payout ratio of approximately 29.01%. This trend is certainly positive as it demonstrates the company's strong ability to balance rewarding shareholders through dividends while also preserving enough retained earnings to fuel growth and withstand economic volatility. The highest payout ratio observed in the given period was 54.41% during 2009, likely due to the financial crisis, showing that even in challenging times, the company kept its payouts relatively moderate. Additionally, since 2015, the payout ratios have been generally declining, with the most recent figure in 2023 being as low as 15.29%. This suggests potential for future dividend increases and robust financial health overall.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

For Deere (DE), examining how well dividends are covered by earnings is crucial. A well-covered dividend ensures that the company can continue to pay its shareholders without compromising on other financial obligations. From the data provided, it is evident that the dividend-to-earnings coverage ratio has typically ranged from around 0.19 to 0.54. Specifically, in 2023, the coverage ratio is approximately 0.15, signaling that just 15% of earnings are being paid out as dividends. This continuously decreasing trend from over 50% in 2009 to around 15% in 2023 indicates that Deere has been increasingly retaining earnings rather than distributing them. This can be interpreted as a good sign, showcasing a cautious and potentially growth-focused approach, but may not please investors looking for higher immediate returns in the form of dividends.

Dividends Well Covered by Cash Flow?

Why is it important to assess whether dividends are well covered by cash flow?

Assessing whether a company's dividends are well covered by its cash flow is essential because it provides insights into the sustainability of the dividend payments. If a company has a strong free cash flow-to-dividend payout ratio, it indicates that the company generates enough cash to comfortably meet its dividend obligations without compromising its financial health. This reduces the risk of future dividend cuts, which can be unfavorable for shareholders.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is crucial for income-seeking investors. Consistent and stable dividends provide a reliable income stream, which is particularly important for retirees or those looking for a steady cash flow from their investments.

Analyzing Deere's dividends per share data from 2003 to 2023 reveals that there was no year where dividends per share (DPS) dropped by more than 20%. The rewards ensured by Deere reflect an exemplary commitment to returning value to its shareholders. In 2006 Deere raised its DPS from $0.66 to $0.805 (a 21.97% increase). Even during challenging periods like the financial crisis in 2008 and the market downturn in 2020 due to the COVID-19 pandemic, Deere maintained its DPS, showing an increase rather than a significant drop. This reliable performance underscores the stability and resilience of Deere's earnings, and it signifies positive support from the company's robust financial performance.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years indicate stability and a commitment to returning value to shareholders, making it a crucial factor for assessing a company's financial health.

Deere & Company (DE) has consistently paid dividends for over 25 years, with annual dividend per share values increasing from $0.44 in 1998 to $5.32 in 2023. This shows a strong and reliable commitment to returning value to shareholders. Importantly, the trend in the dividend per share has been upward, revealing financial stability and robust growth. For instance, from 2018 to 2023, the dividend increased from $2.74 to $5.32, an approximate 94% increase over five years. This trend underlines Deere's healthy financial status and its potential as a long-term investment for dividend-focused investors. The consistent rise in dividends is a good indicator of profitability and sound financial management within the company.

Reliable Stock Repurchases Over the Past 20 Years?

examine how consistently a company has repurchased its own shares over a long period.

Deere (DE) has demonstrated a fairly consistent trend of stock repurchases over the past 20 years, as evidenced by steady decreases in the number of shares outstanding from 487.2 million in 2003 to approximately 292.2 million in 2023. More specifically, out of these 20 years, 15 years have seen share repurchases. Reliable stock repurchases often signify strong cash flow and management's confidence in the company's future, both of which are positive attributes. The average annual repurchase rate stands at -2.48%, which indicates that on average, Deere has reduced its outstanding shares by this percentage each year, a positive sign for shareholders. Fewer shares outstanding generally translate to higher earnings per share (EPS), assuming the company's overall earnings remain stable or grow. Thus, this consistency in reducing shares is a good trend and showcases Deere's commitment to returning value to shareholders through stock repurchases.