Update: Lindsay Corporation Increases Its Dividend

Jul.28.14 | About: Lindsay Corporation (LNN)


On Friday morning Lindsay Corporation announced that it is increasing its dividend from $0.26/share per quarter to $0.27/share per quarter: Lindsay has increased its dividend 13 years in a row.

I hadn't anticipated this in my bullish article last May.

Despite weakness in the company's recent sales and profit figures the secular bull market in irrigation is in tact, and this dividend raise solidifies this viewpoint.

On Friday July 25th Lindsay Corporation (NYSE:LNN) announced that it would be raising its dividend about 4% from $0.26/share ($1.04 annualized) to $0.27/share ($1.08 annualized). With this increase the company has increased its dividend for 13 consecutive years, and in more recent years we have seen more frequent dividend hikes, including a double in 2013 from $0.13/share to $0.26/share. The stock now yields 1.3%.

In my initial investment thesis, spelled out in May, 2013, I wasn't so much interested in the company's dividend, which was less than 1%. My enthusiasm for the company stemmed from its dominant market position in the irrigation market, which I was/still am bullish on. The world's growing population will drive demand for food while the amount of arable land isn't growing. This means that farmers need to grow more food on the same amount of land, and they need the correct materials and technology in order to do this. Irrigation systems can help farmers monitor the amount of water their crops receive so that they can maximize yield while conserving water.

Since then agricultural commodity prices have been weak, which means that farmers have less money with which to buy irrigation systems. However the long-term thesis is still in place. Nevertheless, as a result of this shorter term weakness Lindsay's earnings declined sharply in the third quarter (ended May 31st). The recent dividend raise is admittedly conservative when compared with the company's average rate of increase (in the 13 years since the increases began the quarterly rate has risen from $0.14/year to $1.08/year, or at a 17% annualized rate). However the raise demonstrates management's confidence in the long-term outlook in the industry--which I agree with--and the small size of the increase reflects management's fiscally conservative strategy, which I should note is also reflected in the company's pristine balance sheet ($182 million in cash/equivalents, $287 million in working capital, and no debt). Given these points I think the stock is still worth owning long term, although I would like to see a pullback before adding more shares to my portfolio.

Disclosure: The author is long LNN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.