Nothing's a sure bet, but Deere & Company (NYSE: DE) has looked promising despite myriad economic and other challenges. The company predicted that it would produce a net income of between $6.5 billion and $7 billion in the fiscal year 2022. But is that enough of a reason to invest in the name that charted the course of modern-day farming equipment?
Let's take a look at the history of Deere & Company and the pros and cons of adding the stock to your pile of dividend investments. Doing your own research can help you decide whether to invest in Deere & Co. and determine whether it will offer you the best dividend stock returns to meet your goals.
History of Deere & Company
John Deere, who moved from Vermont to the Midwest, set up shop as a blacksmith in Grand Detour, Illinois, in the 1830s. He noticed that settlers were having trouble taming the prairie soil. He whipped a broken Scottish steel saw blade to a piece of wood to create a plow and just like that, created a business that still bears his name. By 1849, he had produced 2,000 plows from these steel saw blades, which could till Midwestern prairie soil without gumming up.
In 1912, the company began expanding into tractors. In 1947, John Deere released its first self-propelled combine, model 55. The 1960s and 1970s ushered in technological changes that required farmers to farm more land for profitability. Deere set its sights on farm equipment for large-scale farming — large tractors, balers as well as seeding and harvesting machinery.
The company has since expanded beyond farm equipment, creating industrial, construction and forestry equipment all over the United States, Canada, Europe, India, Argentina, Brazil and South Africa. It operates through four segments:
- Production and Precision Agriculture: This division produces mid-sized tractors, combines, cotton pickers, sugarcane harvesters, tillage equipment, and more.
- Small Agriculture and Turf: This division produces utility tractors, loaders and attachments, turf equipment, riding lawn mowers, commercial mowing equipment, utility vehicles and more.
- Construction and Forestry: This division produces backhoe loaders, crawler dozers and loaders, excavators, motor graders, skid-steer loaders, log harvesters, roadbuilding equipment and more.
- Financial Services: The Financial Services division produces, sells and leases agriculture, turf, construction, forestry equipment and also offers wholesale financing to dealers.
The Moline, Illinois-based company has begun expanding into machine learning, applying it to agriculture as well. For example, Deere & Company acquired Blue River Technology in September 2017, which reduces herbicides by spraying only where weeds exist.
For the second quarter ended May 1, 2022, Deere & Company reported a net income of $2.098 billion compared with a net income of $1.790 billion on May 2, 2021. Net sales and revenues increased 11% to $13.370 billion in the second quarter of 2022 and for six months, rose 8% to $22.939 billion. Net sales were $12.034 billion for the quarter and $20.565 billion for six months, compared with $10.998 billion and $19.049 billion last year.
While historical results never guarantee future results, it's also important to consider the track record of the company in which you plan to invest. It can clue you into a lot about a particular company and help you decide whether you should invest or not.
Pros and Cons of Deere & Company
Why might you want to invest in Deere & Company and why might you want to consider just keeping an eye out instead? Let's take a look at both the pros and cons of investing in Deere & Company stock.
- Brand synonymous with quality: A household name, Deere & Company has cornered several markets as an international rockstar. It offers some of the best equipment options in the industry and has a diverse array of specialty equipment, including lawn tractors, balers, combines and loaders.
- Research and development: Deere spends substantial amounts on research and development which results in top-of-the-line products and products that have strong resale value. It's safe to assume that strong R&D will continue to pan out in the company's favor, considering what it's doing in the realm of smart farming solutions, which helps farmers make choices about when to plant and harvest; drought management, which helps farmers learn more about drought risk through satellite data; and self-driving tractors, which the company continually seeks to improve.
- Record highs: Over the past year and throughout 2022, Deere & Company has only reported good numbers and strong guidance. Its dividend yield currently sits at 1.45% with an annual dividend of $4.52, a dividend yield of 1.52% and a dividend payout ratio of 23.58%.
- Competition: Deere & Company has to keep an eye on its back because it isn't the only one out there producing farming equipment. It has formidable competition in Gehl, Husqvarna Group, Caterpillar Inc., AGCO, the Toro Company, Mahindra, CNH Industrial, Kubota, Claas, and more.
- Not the best dividend stock in the arena: Speaking of competition, Deere & Company has competition when it comes to dividends. For example, Caterpillar pays an annual dividend of $4.44 per share and has a dividend yield of 2.5%, while Deere offers $4.52 per share with a dividend yield of 1.5%. What about earnings versus dividends? In that case, Caterpillar pays out 37.2% of its earnings in dividends, while Deere pays out 23.6% of its earnings in dividends. A more telling signal is Caterpillar's increased dividend for 29 consecutive years compared to Deere & Company's increase of just 2 consecutive years. Higher yields and longer dividend growth points to Caterpillar as the best dividend pick if you're looking for a high payer.
Is Deere & Company a Decent Dividend Pick?
It's important to recognize that Deere & Company is not the only decent dividend pick. (Check out the 6 best dividend stocks of all time.) Among a world of competitors and telltale whipsaw of its stock price this year, Deere & Company has its struggles as well as its high points, just like a lot of its competitors.
It's a good idea to evaluate your goals against the qualities (the highs and the lows) of the company you plan to invest in.
Companies Mentioned in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Deere & Company (DE)||$333.89||-2.1%||1.35%||16.69||Moderate Buy||$407.68|
|Caterpillar (CAT)||$164.08||-1.1%||2.93%||13.13||Moderate Buy||$222.44|
|Husqvarna AB (publ) (HSQVY)||$11.10||flat||N/A||N/A||Hold||N/A|
|CNH Industrial (CNHI)||$11.17||-0.5%||N/A||10.15||Buy||$17.29|
|Mahindra & Mahindra (MAHMF)||$14.38||flat||N/A||N/A||Buy||N/A|