Archer-Daniels-Midland Company (NYSE: ADM) may not come to mind as the first choice for a dividend stock.
During the height of the pandemic, companies that produce food ingredients experienced major challenges. A company like Archer-Daniels Midland may experience dips but rebound because of its comprehensive offerings and find growth opportunities. But is it enough to convince you to buy the stock?
Naturally, you don't want to sink your money into just any company. Let's take a look at the reasons to invest in Archer-Daniels-Midland Company as well as the pros and cons of whether or not you should purchase this company's stock.
About Archer-Daniels-Midland Company
Archer-Daniels-Midland Company, which is headquartered in Chicago, specializes in animal and human nutrition, agricultural commodities and other products and ingredients, including oilseeds, corn, wheat, milo, oats and barley that goes into foods and beverages. The company also works to improve nutrition for pets and livestock. A few segments include ag services and oilseeds (such as soybeans and soft seeds like cottonseed, sunflower seeds, canola and flaxseed), carbohydrate solutions (converts corn into sweeteners, starches and bioproducts) and nutrition (this segment improves food, beverages, health and wellness for customers).
The company offers a wide portfolio that includes refined oils to produce biodiesel and glycols, peanuts, peanut-derived ingredients and cotton cellulose pulp, sweeteners, corn and wheat starches, syrup, glucose, wheat flour, dextrose, ethyl alcohol and ethanol, corn gluten feed and meal as well as natural flavors and extracts.
According to Q2 results, Ag Services revenue more than doubled compared to a year ago and Global Trade expanded, North America had a solid performance as export volumes remained strong, and the company's South America results were higher due to strong global grain demand. This demand increased origination volumes and better margins.
The company also experienced impressive soy results and at the same time, Carbohydrate Solutions results were substantially higher versus the prior-year period and Human Nutrition also delivered higher results from the previous year. However, at the same time, Defined Products and Other results were similar to the prior-year period.
The company also experienced significant profits in Animal Nutrition due to strong volumes and margins in amino acids. Furthermore, Other Business results increased from the prior-year quarter.
Pros and Cons of Purchasing Archer-Daniels-Midland Company
Let's take a look at the pros and cons of purchasing this company's stock. It may help you make a decision about whether to invest in the company.
First, let's take a look at the benefits of investing in Archer-Daniels-Midland Company:
- Portfolio expansion: Archer-Daniels-Midland Company has been expanding its solutions portfolio, including its Carbohydrate Solutions unit. The company partnered with LG Chem to produce lactic and polylactic acids in the pharmaceuticals and personal care markets.
- Up in Q2: By Q2, the company's earnings were $2.18 per share, up 73% from the prior-year quarter's $1.26. Revenues increased 19% year over year to $27.2 million and solid sales across the majority of the segments contributed to the top line. Q1 also had excellent results, with a 25.2% increase in revenues as well. Adjusted earnings grew 36.7% year over year and earnings on a reported basis were up 52.5% from the previous year.
- Track record: You can expect an excellent dividend track record with ADM. The company's dividend increase track record is 49 years with a dividend payout ratio of 25.20% and a dividend yield of 1.85%.
Now, let's take a look at the downsides of investing in Archer-Daniels-Midland Company.
- Share declines: The share price of Archer-Daniels-Midland Company has declined considerably from its 12-month high in April. Over the summer, the stock's share price has continued to lag from week to week.
- Global agriculture production impact: Global agriculture production has been affected by the Russia-Ukraine conflict. Ukraine is a major net exporter of many leading cereal crops, including Sunflower oil, wheat, corn and barley. The Russian Federation also manufactures wheat and meslin. As a result, grain commodities have gone up considerably, impacting the company.
- Trading at fair value: The company is likely trading at fair value right now. You'd be better off buying a stock well below its fair value and waiting for it to appreciate at fair value or beyond.
- Competitors: Archer-Daniels-Midland Company isn't an island of its own. It competes with several other companies, including Ingredient (NYSE: INGR), Cargill, Fresh Del Monte Produce (NYSE: FDP), Bunge (NYSE: BG) and Tyson Foods (NYSE: TSN).
Should You Invest in Archer-Daniels-Midland Company?
Ultimately, it's important to consider all aspects of a company before you invest. The considerations are almost universal before you choose your investments. It's a good idea to consider your goals, financial situation, when you may need money and how you feel about risk. Whether you want to invest for retirement, for your kids' education or to save for a down payment for a home, it's important to consider your motives for investing. Ultimately, when do you need the money?
Also consider how you feel about risk. Are you comfortable investing in a single stock? However, do you prefer to have a more diversified portfolio, such as in the case of a mutual fund, which are bundles of stocks that you can purchase in order to spread out your investments? There are lots of ways to diversify, however. You can invest in a wide variety of companies, various industry sectors, geographical markets, asset classes and more. It can also help you weather market fluctuations.
Finally, ask yourself how much you'd like to get involved in your own portfolio. If you want to handle your own investments, you may want to consider investing with a robo-advisor, which will give you the opportunity for a computer to invest on your behalf without the need for human involvement.
Otherwise, you may want to consider asking a financial advisor to help you make decisions about how to invest your money, particularly if you don't feel comfortable making your own decisions about how to invest your money.
Companies Mentioned in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Archer-Daniels-Midland (ADM)||$80.45||-0.2%||1.99%||12.67||Moderate Buy||$88.42|
|Ingredion (INGR)||$80.52||-1.9%||3.23%||11.88||Moderate Buy||$102.50|
|Bunge (BG)||$82.57||+0.4%||3.03%||7.11||Moderate Buy||$118.67|
|Fresh Del Monte Produce (FDP)||$23.24||-1.3%||2.58%||30.18||N/A||N/A|
|Tyson Foods (TSN)||$65.93||-1.4%||2.79%||5.92||Hold||$93.13|