Dividend Stock Analysis: Archer Daniels Midland

May.26.11 | About: Archer Daniels (ADM)

In the past few weeks, we did an analysis of 3 dividend stocks from the oil sector and of JM Smucker (NYSE:SJM) which turned out to be a great dividend play. All of those companies had made our select group of companies poised for big things in terms of dividend growth. Today we are taking a deeper look at great potential dividend plays based in Canada.

Today, we take a deeper look into Archer Daniels Midland (NYSE:ADM), a conglomerate which transforms cereal grains and oil seeds into food, beverage and all kinds of industrial products. It’s a very big company even though you might have never heard about it. In fact, the company recorded revenues of over $60 billion in 2010. In theory, this kind of business could be very promising as it is not very cyclical, and generally can bring steady cash flows which would hopefully translate into high dividends as well.

No surprises in the fact that we will judge it using the 20 things we look for in dividend stocks.

Dividend Metrics

Ticker Name Current Dividend Yield 5 year Dividend Growth 1 year Dividend Growth
ADM Archer-Daniels-Midland Co 1.69 10.88 6.9
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When I look at the current dividend yield, it is not amazingly high at 1.69% but is high enough to be considered as a strong dividend stock if the company can rise those consistently. In the past five years, the dividend has increased by 10.88% which is certainly significant.

Company Metrics

Ticker Name Sales Growth (1 year) Sales Growth (5 year) Earnings growth P/E ratio Margins growth Payout ratio Return on Equity Debt to Capital Ratio
ADM Archer-Daniels-Midland Co -10.87 20.61 N/A 9.87 -1.63 19.27 13.67 0.46
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The 1 year sales growth number is certainly a bit worrying but I give much more credibility to the 5 year number which is very high and impressive. The P/E ratio is very reasonable and while neither earnings or margins are improving, the payout ratio is very low. However, the debt ratio is a bit higher than I’d like.

Stock Metrics

Ticker Name Trend Analysis Price Trading Volume
ADM Archer-Daniels-Midland Co 31.29 6525553.5
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Industry Metrics

ADM certainly operates in a relatively good sector, one that is stable and faces limited competition. That being said, the company now also operates in the more uncertain alternative energy business, has had its fair of issues with environment problems and price fixings, etc. It’s not the most reassuring thing in the world.

Overall Impressions

While there are many good elements to ADM, I would end up passing overall because of the high debt level, and its good but not great dividend yield and dividend growth in recent years.