We recently compiled a list of the 20 Worst Dividend Aristocrat Stocks According to Analysts. In this article, we are going to take a look at where Archer-Daniels-Midland Company (NYSE:ADM) stands against the other dividend aristocrat stocks.
Dividend aristocrats are companies that have raised their dividend payouts for at least 25 consecutive years. Achieving and maintaining a dividend streak this long is a tough nut to crack. That is why, among the approximately 6,000 stocks listed on the NYSE and NASDAQ, only around 67 companies have earned the distinction of being called dividend aristocrats. This strong dividend growth track records imply that these companies were financially stable enough to sustain their payouts during two significant financial crises: the Great Financial Crisis of 2008 and the COVID-19 pandemic. Besides this, these companies have also shown strong performance relative to the broader market over the years. The Dividend Aristocrat Index has outperformed the wider market with lower volatility since its inception in 2005. Recently we covered the list of the 25 Best Dividend Aristocrats to Buy according to Wall Street analysts.
Analysts have closely observed the performance of dividend aristocrats in the past and in recent times. In a January 2019 blog post titled ‘Dividend Growth Strategies and Downside Protection’, Phillip Brzenk, global head of multi-asset indexes, analyzed how dividend growth strategies perform, particularly in times when the market experiences declines. He said that since the end of 1989, there have been six calendar years when the broader market posted negative performance. Interestingly, in each of these years, the Dividend Aristocrats outperformed the broader equity benchmark by an average of 13.28%. Moreover, they managed to achieve a positive total return in three of those challenging years. He further said, the aristocrats outperformed the market in 53% of instances, with an average outperformance of 0.16%, when their performance was observed on a monthly basis.
As mentioned above, dividend growth stocks have performed better than the overall market. Since its inception in 2005 up until September 2023, the dividend aristocrats index achieved a total return of 10.35%, surpassing the broader market’s return of 9.54% during the same timeframe. Additionally, the dividend aristocrats exhibited lower volatility, at 15.35%, compared to the market’s 16.31%. This indicates that the prices of these stocks are more stable and less prone to frequent changes, demonstrating their relative resilience.
That said, analysts are now turning their attention to different aspects of dividend investing. For taxable investors, dividends can be less favorable compared to share repurchases. Additionally, focusing on dividends limits diversification since around 60% of U.S. stocks and 40% of international stocks do not pay dividends. As a result, portfolios that emphasize dividends are significantly less diversified than those that do not consider dividends in their design. Less-diversified portfolios tend to be less efficient due to a higher potential range of returns without any corresponding increase in expected returns, assuming the exposure to common factors remains constant. Moreover, emphasizing dividends often leads to an overinvestment in U.S. equities, causing a home-country bias and further reducing diversification.
According to this analysis, dividends are a tax-efficient method for returning capital to shareholders. However, investors continue to favor these equities due to their solid performance and the reliable income they offer. Although dividend aristocrats are strong companies with consistent dividend growth, some are less favored by analysts due to factors like industry challenges, macroeconomic conditions, and specific business issues.
Our Methodology:
For our list, we scanned a list of the S&P 500 Dividend Aristocrats, companies that have raised their dividends for 25 consecutive years or more. We then ranked these stocks according to their average analyst ratings from Yahoo Finance, where a higher score signifies the worst rating. The “Recommendation Rating” is a way to assess stocks. It uses a scale from 1 to 5, with each number indicating a different recommendation:
1. Strong Buy
2. Buy
3. Hold
4. Underperform
5. Sell
From this ranking, we selected the stocks with scores of 3 or more.
A wheat field at sunset, showing the company’s commitment to agricultural commodities.
Archer-Daniels-Midland Company (NYSE:ADM)
Average Analyst Rating Score: 3.6
Archer-Daniels-Midland Company (NYSE:ADM) is an Illinois-based food processing company. It ranks ninth on our list of the worst dividend aristocrat stocks. On May 1, the company declared a quarterly dividend of $0.50 per share, which fell in line with its previous dividend. It is a Dividend King with a dividend growth streak over 51 years. The stock’s dividend yield on June 14 came in at 3.36%.
Analysts presented a bearish stance on Archer-Daniels-Midland Company (NYSE:ADM) as the company is affected by commodity prices as a gain processor and trader. Increased supply has led to falling prices, negatively impacting the company’s results. In the first quarter of 2024, it reported a revenue of $21.8 billion, which showed a 9.24% decline from the same period last year. The company had a rough start to 2024 when it appointed a new interim CFO amidst an ongoing accounting investigation. It also disclosed the pending investigation by external legal counsel regarding specific accounting practices and procedures with ADM’s Nutrition segment. After this event, the market lost confidence in the company and the stock declined by 29% on January 22. Seth Goldstein, analyst at Morningstar Investment Service, made the following comment on this news:
“This week’s news damages ADM’s growth strategy, it damages their credibility and their plan to shift away from just creating merchandising and crop trading into this more stable, higher profit nutrition business.”
In the first quarter of 2024, Archer-Daniels-Midland Company (NYSE:ADM) reported a 39% decline in its Nutrition segment revenue to $84 million. The stock is down by over 18% year-to-date. Diamond Hill Capital also highlighted the current environment for ADM in its first quarter 2024 investor letter:
“Other bottom contributors in Q1 included Archer-Daniels-Midland Company (NYSE:ADM). Shares of agricultural commodities and products company ADM sold off materially following the announcement its CFO had been put on administrative leave due to inter-segment financial reporting issues (particularly related to the nutrition segment) and the SEC had an open investigation into the matter. ADM has since published its fiscal year 2023 10-K, which included restatements of inter-segment operating profits from 2018-2023. Since this was an inter-segment issue, the consolidated financials did not need to be restated. While we are watching further developments, we remain comfortable with the business valuation at the current level.”
According to Insider Monkey’s database, 40 hedge funds owned stakes in Archer-Daniels-Midland Company (NYSE:ADM) in Q1 2024, up from 34 in the preceding quarter. These stakes are valued at over $966.3 million.
Overall ADM ranks 9th on our list of the worst dividend aristocrat stocks to buy. You can visit 20 Worst Dividend Aristocrat Stocks According to Analysts to see the other dividend aristocrat stocks that are on hedge funds’ radar. While we acknowledge the potential of ADM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as ADM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.