Linked here is a detailed quantitative analysis of Monsanto Co. (MON). Below are some highlights from the above linked analysis:
Company Description: Monsanto Co. is a global provider of agricultural products and integrated solutions for farmers.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
Monsanto is trading at a discount to 1.) and 3.) above. The stock is trading at a 17.2% discount to its calculated fair value of $84.37. Monsanto earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
Monsanto earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The stock also earned a Star for having an acceptable score in at least two of the four Key Metrics measured.
Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2002-2005, 2003-2006, 2004-2007, etc.). I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 2001 and has increased its dividend payments for 10 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
Monsanto earned a Star in this section for its NPV MMA Diff. of the $6,303. This amount is in excess of the $2,500 target I look for in a stock that has increased dividends as long as Monsanto has. If Monsanto grows its dividend at 16.7% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 3.1%. Monsanto earned a check for the Key Metric 'Years to >MMA' since its 3 years is less than the 5 year target.
Memberships and Peers: Monsanto is a member of the S&P 500 a member of the Broad Dividend Achievers™ Index. The company's peer group includes: The Mosaic Company (MOS) with a 1.1% yield, Potash Corp. (POT) with a 1.4% yield and Syngenta AG (SYT) with a 2.3% yield.
Conclusion: Monsanto earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks Monsanto as a 4-Star Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $100.68 before MON's NPV MMA Differential decreased to the $2,500 minimum that I look for in a stock with 10 years of consecutive dividend increases. At that price the stock would yield 1.6%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,500 NPV MMA Differential, the calculated rate is 13.4%. This dividend growth rate is lower than the 16.7% used in this analysis, thus providing a significant margin of safety. Monsanto has a risk rating of 1.75 which classifies it as a Medium risk stock.
In recent years, missteps and misfortune that have plagued Monsanto include an overly aggressive pricing strategy for the firm's latest technology which led to weak results and price cuts. In addition, the federal government is looking at Monsanto's business, for antitrust violations.
However, on the positive side, the company owns a promising pipeline of seed products. Monsanto is well positioned to quickly turn things around with the introduction of next-generation seeds and increased penetration of international markets like South America.
With low debt and a low free cash flow payout ratio, Monsanto's dividend fundamentals are desirable. The stock is trading well below my calculated fair value of $84.37, but with a yield of 2.3%, it is currently not a serious contender for any of my income portfolios.
Disclosure: At the time of this writing, I held no position in MON (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.