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The Recently Recommended Monthly Stock Special
Recently Recommended

The recently recommended company is *Deere & Co. (DE)

Company Information:

Founded in 1837 by John Deere, and headquartered in Moline, Illinois, Deere & Co. (DE) is the world’s leading manufacturer of agricultural equipment, which operates through three business segments: Agriculture and turf, construction and forestry, and financial services. The company markets its products primarily through independent retail dealer networks and retail outlets. Its current total market capitalization of $45.5 billion makes DE a large capitalization stock (a large-cap stock has a market capitalization value of more than $10 billion) and its long history of consistent earnings growth and dividend payments makes it a solid company.

 

It is considered a well-diversified business with a wide economic moat and a sustainable competitive advantage over its rivals, which also enjoys outstanding management and corporate culture. According to Yahoo! Finance, consensus estimates call for the company to earn about $6.40 per share this year, and to go to about $8.64 per share in 2021. Deere & Co. has paid dividends to investors since 1937, and during the past five years has increased its dividends at an average rate of 5.1%. Its quarterly payment of $0.76 per share currently provides a yield of 2.1%.

 

The value of dividends reinvestment: A hypothetical investment in Deere & Co. has grown cumulatively (including dividends reinvested) 6,519.11% during the past forty years. The same investment has grown only 2,891.84% in the same period of time, excluding dividends. The stock exhibits a healthy Dividend Payout Ratio (DPR is the proportion of earnings paid out as dividends to shareholders) of 30%, which means the company is paying out 30% of all its net income in dividends, and is retaining a large percentage of earnings to reinvest or grow the business. Its average DPR during the past five years is 39%. Its current Price to Earnings ratio (P/E --a measure of valuation) of 14.17 is 19.0% below the US Market Index. Its Price to Sales ratio (P/Sales) of 1.20 is 32.5% below the index, and its Price to Cash Flow of 10.17 is 11.36% below the same index. According to Morningstar, the stock is trading at a 17% discount, making it attractive for investors with a long-term investment horizon.

 

Technically (from the chart’s perspective) DE also looks attractive, trading 24.2% below its 52 weeks high, while it is forming a price consolidation pattern between $182 and $106 approximately, in which $106 is acting as a strong technical support level. The index funds Vanguard Total Stock Market Index and Vanguard 500 Index are major shareholders of DE, holding 2.91% and 2.04% of its shares respectively. The stock is also one of the 63 holdings of the mutual fund managed by Moneypaper Advisors, the MP 63 Fund (DRIPX). DE’s main competitors in the world are Caterpillar Inc. (CAT) and AGCO Corp. (AGCO). DE’s Beta (a measure of the volatility, or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is 1.05 so the stock is 5% more volatile than the Market.

 

Best and worst years during the past 40 years: Its best year was 2007, in which DE returned, excluding dividends, 95.9%. On the flip side, its worst year was 2008, when the stock declined 58.9% excluding dividends. Its Dividend Reinvestment Plan charges some fees for cash investing ($3, plus 5 cents per share), for dividend reinvestment (5% with a maximum of $3, plus 5 cents per share) and for selling ($10 plus 5 cents per share). To illustrate those fees: For example, a $100 investment at DE’s current price would cost a fee of $3.04 (or 3.04% of the investment). To minimize the effect of even such small fees, you may want to invest a larger amount but less frequently. The fee for a $300 investment, for instance, would be $3.11 (or 1.04% of the investment). With the stock being fundamental and technically attractive, this company is an appropriate holding for investors who wish to build a holding over the long term.

 

Disclosure: Mario Medina has no position in Deere & Co., and has no plans to initiate any position in the immediate future. However, the author is the portfolio co-manager of the MP 63 Fund (DRIPX), which does hold a position in the company. The author wrote the article himself and it expresses his own opinions. The author has no business relationship with DE and this article is not intended as a recommendation to invest as the information published does not take into account any subscriber's personal finances, goals or risk tolerance. Accordingly, you should be aware of all the risks associated with any financial investment and should consult an independent financial advisor for any personal investment advice. Past results illustrated in the article are for reference and educational purpose only and do not guarantee future performance.

 

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