Monsanto (NYSE:MON) recently announced a quarterly dividend of 43 cents per share payable on July 25, 2014. Its share-price, also on a surge, gained more than 19.74% in the past year alone. I believe Monsanto is set to make a substantial dividend increase in its next quarterly dividend. The company's business strategy is working even when other companies are facing head-winds in generating growth. Monsanto has generated strong revenue and margin growth in the past three years and is posting even higher profits in this year. Its core seeds and traits business are driving growth for the company. In the latest quarter, 80% of gross profit comes from its seeds business, particularly soybeans and corn. Further, its broader and balanced portfolio allows it to make growth in the depressed commodity price environment.
Macroeconomic indicators show that agricultural input businesses are likely to stabilize in the coming quarters. Effects of the severe drought in 2012 and the volatility in the supply and demand of dynamics are subsiding. Thus, the companies operating in the agricultural inputs industry are seeing 2014 as a transition year. With the increasing acres and population, companies are predicting strong long-term growth as companies and peoples have no other alternatives other than increasing productivity. Looking at the long-term opportunities, Monsanto has already set its portfolio to capitalize on the demand. At the moment, it has more platforms than it ever had.
Its Roundup Ready soybeans and Intacta RR2 PRO soybeans and its indemnification collection system (Bollgard cotton) are adding considerable market share and value for the company. In addition, it is improving its market share with the commercialization of second- and third-generation traits and the stacking of multiple traits in corn, soy and cotton. Monsanto is trying to give a boost to its low performing vegetable seeds business with new products and acquisitions. On the other hand, its agricultural productivity businesses are also on momentum. It is looking to maintain the premium price generic products and its Roundup herbicide business will drive growth and cash flows for Monsanto. It had focused on its crop protection business to support Roundup Ready crops with its weed management platform. The lawn-and-garden business will also add considerable growth to its Agricultural Productivity business. Overall, Monsanto's broader global portfolio and traits and seeds business reinforces that the company is well-set grow in front of headwinds
A look at its financial situation will explore more facts about Monsanto's future prospects and ability to create value for the shareholders. In the past three years, it has generated impressive growth in revenue and earnings. On average, in the past three years, its revenue growth was at 12.3% and earnings growth was at 31.3%. In the first half of this year, its sales increased by 7%, and net income by 23% compared to the first half of 2013. Monsanto is likely to generate higher sales and earnings in 2014 compared to 2013. It is expecting to generate earnings per share in the range of $5.02 to $5.20. With the consistent growth in net income, it has been able to enhance its cash generating potential.
Its operating cash flows are providing cover to capital investments. In the first half of 2013, its capital expenditure increased compared to the past years due to the acquisition of The Climate Corporation. Thus, this year, its capital expenditure is expected to arrive at $1 billion compared to the past year of $763 million. Monsanto is looking to generate operating cash flow of around $3 billion, which covers the required cash of around $2.3 billion for investing activities, including the capital expenditure of $1 billion. Its liquidity position looks strong as operating cash flows are sufficient to meet its investing requirements. Further, the company has the ability to fund investments with the short-term commercial paper borrowing. In addition, it has a $2 billion of revolving credit facility available, and no borrowing has been taken under this facility.
Monsanto has been generating strong growth over the years and likely to continue its momentum in the coming days. Its diversified portfolio and innovative products will drive future growth. Its Roundup Ready soybeans and Intacta RR2 PRO soybeans and traits in corn, soybeans, and cotton will add considerable growth. Its financial position is also strong. The company has recently announced fourth quarterly dividend of $0.43 per share, and I am expecting an increase in its next quarterly dividend as the company has strong cash generating potential. With a consistent surge in share price, its stock is trading around 52 weeks high. I believe Monsanto is a good stock to buy and hold for the long-term investors, but investors should wait for the market correction before initiation a position.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.