Deere & Co keeps rewarding shareholders

Massive buybacks and double digit dividend growth

Deere is a dividend growth and buyback monster (image: company website)

Deere & Co’s (DE) stock price jumped on Thursday after better than expected Q3 2024 results. We expect a dividend hike early December. Learn everything about the buyback and dividend growth monster Deere & Co.

Lets start with some surprising news on Deere: the dividend has been hiked no less then three times in 2023 and the company is buying back huge amounts of its own stock. With Deere its either a big fat double digit dividend hike or no increase. The last three years the dividend was hiked big time, jumping from $0.76 to $1.47 quarterly, bringing the 5 yr CAGR to a whopping 14.1%.

It is likely that Deere will announce another double digit dividend hike in a couple of weeks. First let’s take a better look at this beautiful dividend stock.

COMPANY HISTORY
On the Deere & Co investor relations website we have found some interesting facts about the company and its long history starting with John Deere, a blacksmith who developed the first commercially successful, self-scouring steel plow in 1837.

Deere, who died in 1886, discovered that traditional cast-iron plows struggled in the Midwest prairie's sticky soil, requiring frequent stops for cleaning. Recognizing the need for improvement, he crafted a self-scouring plow with a polished steel surface, using materials like a broken sawblade. The demand for this innovation was so high that hundreds gathered to witness its testing at Lewis Crandall's farm near Grand Detour. This marked the beginning of Deere's identity and business, as he transitioned into manufacturing plows.

In 1868, Deere’s business was incorporated under the Deere & Company name.

RESULTS AND OUTLOOK
In FY 2023 (the calendar year ends in October) Deere & Co had record sales of $55.6 billion, up almost 16% from 2022. In FY 2024 however the revenue declined by 19.45% to $44.579 billion. The company generates about 54% of its revenues in The United States, with 14% coming from runner up Latin America. The agricultural sales are more than 65% of the total for Deere, with construction and forestry equipment racking up almost 25% of total sales and the financial services division bringing in the remainder.

Yesterday (November 21, 2024) Deere & Co reported strong quarterly earnings driven by lower production costs, which helped offset weaker farm equipment demand, sending shares up 8%. However, its 2025 profit forecast of $5-5.5 billion fell below market expectations of $5.93 billion. A decline in farm incomes, high interest rates, and lower commodity prices are pressuring farmers' purchasing power, leading to cautious inventory restocking by dealers. While Deere expects global farm fundamentals to remain challenging, it continues to manage inventories and maintain pricing. The company projects a 10-15% sales decline across machinery segments for the year.

THE DIVIDEND AND BUYBACKS

An interesting fact is that Deere always hikes by at least double digits, similar to Broadcom that we discussed in our previous Dividend Freak video. In the last 17 years Deere hiked its dividend by at least double digits 11 times, resulting in a double digit dividend growth for the last 3, 5, 10 and 20 years.

Not many investors know that Deere has raised the dividend three times in 2023: In February, August and in December, bringing the quarterly payment from $1.20 to $1.47 per share, so up 22.5%. That’s amazing, especially with the stock price down more than 15% YTD. Deere also bought back more than 3% of its own stock in both 2022 and 2023 and repurchased a whopping 5.6% of its own shares in FY 2024 (ending this October).

Deere has been paying a steady or growing dividend to shareholders for decades now with annual dividend payments since at least 1972. The company’s dividend policy states that Deere aims for a consistently and moderately dividend increase targeting a 25%-35% payout ratio of mid-cycle earnings.

For FY 2024 Deere generated $15.98 in free cash flow per share, leaving a lot of room for additional dividend hikes with the annual dividend payment standing at $5.88 per share. This is why we expect another double digit dividend hike for Deere in a couple of weeks; the company will announce its fourth dividend for 2024 early December. BUT: It’s also possible that Deere skips its dividend hike in 2024; the company also didn’t raise the dividend in 2019 and 2020. With revenue and profits down for 2024 and the company buying back massive amounts of its own stock, a fresh dividend hike will possibly be delayed to 2025.

DEERE & CO ANNUAL DIVIDEND HIKES

·         2023: +22.5% (three hikes to $1.47 quarterly)

·         2022: +14.1%

·         2021: +38.2%

·         2020: no increase

·         2019: no increase

·         2018: +26.7%

·         2017: no increase

·         2016: no increase

·         2015: no increase

·         2014: +17.6%

·         2013: +10.9%

·         2012: +12.2%

·         2011: +17.1%

·         2010: +25.0%

·         No increase

·         2008: +12.0%

·         2007: +13.6%

Deere & Co’s stock price is up 9.4% in 2023, despite a broader sell-off in cyclical agribusiness stocks that are depending on the income from farmers worldwide. Especially in Brazil the market is under pressure, pulling down companies such as FMC, Corteva, Bayer and Deere peer AGCO Corporation in the last couple of years.

At the current stock price of $437 the dividend yield for Deere & Co stock is 1.3%. Deere now pays an estimated $1.6 billion in dividends annually with a total increase of 93% in the last 5 years.

The interesting thing about Deere is that, apart from a growing dividend, the company also keeps buying back its own stock, especially in down years such as 2023 and 2024. This year Deere appears to have repurchased more than 6% of its shares outstanding. Deere had already repurchased approximately 3% of its own shares in 2023, following a buyback yield of 3.0% in 2022. This comes on top of the current dividend yield of 1.3%, leaving investors with a combined buyback and dividend yield of more than 6.9% at current stock prices.

In a recent investor presentation Deere explains its so called ‘use of cash priorities’ stating that it is committed to its ‘A’ rating that provides access to low-cost and readily available short- and long-term funding mechanisms. Next the cash is used for funding value creating investments, the common stock dividend and, all earlier mentioned requirements are met, the buyback of its own shares.

Since 2014 Deere & Co has repurchased more than 205% of its outstanding stock, on top of a dividend that was increased from $0.60 to $1.47 quarterly over the same period.

Disclaimer: The information provided here is for informational purposes only and should not be considered financial advice. Investors should conduct their own research or consult with a financial advisor before making any investment decisions.