Anticipating increased profits in 2014 as well as strong
operating cash flows
Archer Daniels Midland Company
) increased its quarterly dividend by 26% to 24 cents per share
from its earlier payout of 19 cents. As a result of this
revision, the company's annualized dividend stands at 96 cents
per share. The higher dividends form part of the company's target
to return $1.4 billion to shareholders via dividends and buying
back 18 million shares out of 2014 profits and cash flows.
The new dividend, which is the 329
successive quarterly payout, will be paid on Mar 13, 2014, to
stockholders of record as of Feb 20, 2014. The dividend yield
based on the new payout and the last closing market price is
Archer Daniels has been increasing dividend every year since
2002. Starting from 5 cents in 2000, the quarterly dividend
payout has now increased nearly five times to the current level
of 24 cents. The current dividend hike comes after 4 quarters.
The last dividend hike from 17.5 cents to 19 cents was announced
on Feb 6, 2013. Historically, Archer Daniels has paid out roughly
20% to 25% of its earnings to shareholders, but now it wants to
increase its range to 25%-30%.
Apart from raising dividend, the company's board of directors
has decided to enhance shareholders' wealth through share
repurchases. Archer Daniels intends to buy back 18 million of its
common shares by the end of 2014, which are worth nearly $725
million at current market price.
The company's strategy of paying regular dividend and
increasing the same at feasible intervals reflects its commitment
to enhance long-term value for shareholders. Through this Archer
Daniels also depicts its ability to boost earnings and cash flows
in the long run.
This global food-processing and commodities-trading company
also announced that it will invest around $1.4 billion in capital
projects in 2014, out of which most will be outside the U.S. in
high growth markets.
In its last earnings announcement, Archer Daniels declared
cash flow of $4,869 million from operational activities.
Furthermore, Archer Daniels ended third-quarter 2013 with $3,252
million in cash and cash equivalents compared with $1,235 million
at the end of the prior-year quarter. Moreover, in the first
three quarters of 2013, the company repurchased stock worth $95
million and paid dividends worth $376 million.
Dividend hikes and share repurchase programs are frequent
among companies with a stable cash position and healthy cash
flow. Apart from Archer Daniels, many other firms have raised
their quarterly dividends in the recent past. These include
Fortune Brands Home & Security, Inc.
) that raised their dividends by 15.8% to 44 cents, 20% to 12
cents and 3.6% to 29 cents, respectively.
We believe that dividend payouts not only enhance shareholder
return but lead to the stock's price appreciation as well.
Moreover, such a measure enables companies to bolster investors'
confidence, persuading them to either buy or hold the scrip
instead of selling it. Looking ahead, Archer Daniels remains
confident of its growth potential, raising hopes for further
enhancement of shareholder value through dividend payments.
Archer Daniels' declaration of its increased dividend boosted
investors' confidence, as was reflected in the company's share
price that rose nearly 2.6% to $41.38 during yesterday's trading
hours before closing at $40.66.
Currently, Archer Daniels carries a Zacks Rank #3 (Hold).
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