Deere & Company (NYSE: DE) might have enjoyed any other day discussing a new factory in China as it expands closer to other end-markets, but today’s excitement is around a higher dividend for its shareholders. The farming and agriculture equipment manufacturer hiked its payout by 17% to $0.41 per quarter or $1.64 per year. After the sell-ff we have seen from highs, the management team at Deere is trying to maintain that business and operations remain strong.
We took a look around to try to see what management was thinking here. Even after a 1.4% gain to $84.25 today, the 52-week range is $53.20 to $99.80. That 52-week high was as recently as April 1, 2011 and Deere’s stock was above $95.00 as recently as May 4, 2011. In short, management wants to signal that a rising dollar is not going to crimp its business plans by too much.
Thomson Reuters has a consensus earnings estimate of $6.34 for its fiscal year-end this October and $7.34 EPS for its 2012 fiscal year. You can probably do your own math, but that is only 25% of its annualized adjusted income projected to be sued for a dividend in this year. Suddenly, a 16% hike in the quarterly payout doesn’t sound so high. The reason is simple… Deere’s cyclical nature can generate wider earnings discrepancies from year to year and the company has to always make sure that it can fund its dividend from normal operations without putting leverage on its books and without risking that the dividend would have to be trimmed.
The current payout for new buyers at today’s price comes to almost 2%, technically about 1.95%. What the company also communicated was that the dividend hike was its ninth hike in seven years. When Deere shares hit that 52-week high earlier this year, that was also a 52-week high and shares have now corrected by about 15% from early April and more than 10% just in the last couple of weeks.
If business was severely sagging, then the company’s hike may have been a tad smaller. It was just late in 2010 that the dividend went from $0.30 to $0.35 per quarter, and the payout was $0.28 two quarters before the price hike.
JON C. OGG
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