Don’t confuse this cyclicality with riskiness. Archer-Daniels-Midland’s 41 year history of consecutive dividend payments shows the company prioritizes its dividends. The company’s management keeps payout ratios fairly low to offset earnings cyclicality. Even at current cyclical earnings lows, the company has a safe 50% payout ratio.
The company’s cyclical downturn has made the stock a bargain. Archer-Daniels-Midland is trading near all-time dividend yield highs.
Source: Sure Dividend
Investors don’t like to see falling earnings – even if it is at a cyclical company that will rebound.
ADM is currently trading for an adjusted P/E ratio of just 12.4. ADM’s historical median P/E ratio over the last decade is around 13.5.
Earnings-per-share are depressed at $2.98/share. Keep in mind earnings are currently depressed. Under normal conditions the company’s earnings would likely be around $3.50 per share.
Using ‘normal’ EPS of $3.50 and the company’s median average P/E ratio of 13.5 implies a fair value of ~$47 per share. Archer-Daniels-Midland is currently trading at ~$37 per share and has 27% upside at current prices.
Retirement Dividend Stock: Flowers Foods, Inc. (NYSE:FLO)
Flowers Foods, Inc. (NYSE:FLO) is the second largest baking company in the United States (Grupo Bimbo is larger). Flowers Foods bread and cake brands are better known than the company. Flowers Foods owns the following brands (among others):
Nature’s Own is America’s leading bread brand. The bread industry may seem boring – but the growth that Flowers Foods generates is exciting. The company has compounded earnings-per-share at 13% a year and dividends at 16% a year over the last decade.
Growth should continue far into the future for Flowers Foods. People will be buying bread for a long time…
Flowers Foods, Inc. (NYSE:FLO) has a long growth runway ahead.
The company is a leader in a highly fragmented industry and currently serves just 85% of the US population. Geographic expansion will lead to growth, as will growing out underserved areas geographically.
Source: Flowers Foods Investor Presentation, slide 5
In addition to geographic growth, Flowers Foods will also see benefits from organic bread growth. The company is well positioned to capitalize on this growth through the Dave’s Killer Breads and Alpine Valley Bread brands.
Flowers Foods’ stock currently has an above average dividend yield of 3.3%. The company has paid steady or increasing dividends for 29 consecutive years – the kind of stability retirees need from their dividend investments.
The company’s long dividend streak is a result of its competitive advantage in the bakery industry. Flowers Foods’ competitive advantage comes from a mix of:
1. It’s large size relative to other smaller bakers
2. It’s well-known brands
These two factors make it difficult for new entrants to the bread industry to compete with Flowers Foods.
There’s no question Flowers Foods is a high quality dividend growth stock. But is the company’s stock trading at a fair price?
Flowers Foods has traded for a price-to-earnings ratio above 20 for much of the past 5 years.
The company is currently trading for a price-to-earnings ratio of 19.3 using adjusted earnings. A fair price-to-earnings ratio for the company is likely 20 around 20.
Flowers Foods is trading around fair value at current prices. The company makes a good investment for retirees looking for safety, current income, and income growth.
