In this low interest rate environment, investors have turned
to high-yielding blue-chips as a source of retirement income.
This five-part series will outline what I believe to be the top
fivedividend aristocrat stocks, most suitable for a retiree's
My first three articles in our five-part series on
aristocrat stocks highlighted the
global paper products company
electrical power solutions giant
Emerson Electric (NYSE:
Automatic Data Processing (Nasdaq:
should be good additions to any retiree's portfolio.
Now I turn your attention to a stock that has rewarded investors
with dividends for the past 80 years. This company currently has a
, has increased its payout for the past 37 years and has a
projected three-year dividend growth rate of 8.1%.
Archer Daniels Midland (NYSE:
fuels North America and its sweet tooth. The agricultural
company -- which procures, transports, stores, processes and sells
agricultural products -- is one of the largest producers of ethanol
and high fructose corn sugar in the United States. It's also a
major processor of oilseeds, especially soybeans, as well as wheat
flour, cocoa and cocoa products.
In addition to the United States, the multinational
operates in more than 75 countries and has established a global
transportation network across more than 265 locations worldwide.
This international transport system enables the company to export
effectively crops, animal feed, food ingredients and raw materials
across the planet.
With global demand for foodstuffs increasing at a faster rate
than the world's population, Archer Daniels Midland is growing at a
steady clip. In the past five years, the company's revenue
increased an average of 19% per year. North America -- one of the
world's largest food consuming regions -- is the company's main
; the United States currently represents 53% of ADM's total global
The company does best when corn prices are lower rather than
higher. Although fluctuations in corn -- used for ethanol and
high-fructose sugar -- and commodity prices have impacted the
margins, the outlook looks good for 2012. According to the May 2012
World Agricultural Supply and Demand Estimates report, excess corn
supply could cause corn prices to drop nearly 40% -- from 2011's
$6.88 high to a 2012 low of $4.20 per bushel.
Looking forward, Archer Daniels could also benefit
from a push to increase ethanol blends in gasoline. The U.S.
Department of Agriculture is recommending the percentage of ethanol
blended into gasoline increase from its current maximum of 10.2% to
a rate of 15-20%, according to a recent report produced by the
WorldWatch Institute. This increase would greatly expand ADM's
ethanol production profits.
Strong technical outlook
Shareholders certainly appear
on the stock.
As the above chart shows,
appear to be emerging out of a technical pattern known as a
head-and-shoulders formation. This pattern is so named because on
the chart it looks like an actual head with a left and right
Here's how the formation came about: The stock rose to its
October 2011 high of $32.80, then declined to a low near $27.63,
forming the left shoulder.
That decline was followed by a push to a higher high at $36.99.
That formed the head.
Next, the stock price fell back to $28.33 in May 2011. But soon
after, shares rose to $31.69 in July, which formed the right
shoulder. But then it fell again.
In technical terms, the head-and-shoulders pattern doesn't
become official until shares drop below the so-called
-- the price below which the stock is unlikely to fall. Once it
sinks below that level, a "neckline" is created, which you can see
labeled on the chart above. The stock then dropped to a low of
$23.29 in late September 2011.
But since hitting this $23.29 low, shares have been on a strong
uptrend, climbing about 37%, so far to date.
The stock is currently near what's known as its resistance level
-- the price above which it is unlikely to climb. That is set
around the low $33-range. Although resistance has not yet been
definitively broken, the more times it is tested, the more likely
it is break. In the past three weeks, the stock has attempted to
break resistance three times.
In late May, shares pulled back slightly. But with the next push
up, it is likely resistance could be broken. In this case, shares
could retest their early 2011 high of $36.99. At current levels,
this represents a potential 15% gain and in the meantime investors
are paid to wait and collect the yield.
This bullish technical outlook is supported by strong
fundamentals. In early May, the company reported solid
third-quarter results.Due to an increase in corn and oilseed
processing sales, revenue for the period increased 5.4% to $21.2
million, up from $20.1 million in the prior-year quarter.
For the full 2012 year, analysts' project revenue will increase
9.3% -- from $80.7 billion in 2011 to a projected $88.2 billion in
2012. With continued demand for the company's ethanol-based
products, analysts' expect 2013 revenue will increase a further
2.9% to $90.8 billion.
outlook is similar.
Due to strong performance in its corn processing and
agricultural services businesses, the company posted much
better-than-expected third-quarter earnings of $0.78 per share,
well ahead of analysts' estimates of $0.60 share, but down 12% from
the comparable year-ago quarter. The year-over-year earnings drop
was largely attributed to weak ethanol margins.
For the full 2012 year, analysts expect earnings will dip 25% to
$2.58 per share. (In 2011, it stood at $3.47.) But as the ethanol
supply-demand equation tips back to the company's favor, earnings
are expected to pick up again in 2013, increasing at least 22% to
$3.17 per share.
In addition to a reasonable growth outlook, the company has a
solid price-to-sales ratio -- a metric to value the stock relative
to its own past performance -- of 0.24. In comparison, the average
for the Farm Products industry is nearly double at 0.50.
In November 2011, Archer Daniels Midland management confirmed
its quarterly dividend of $0.175 per share, for a projected forward
annual yield of 2.2%. Every year since 2008, the company has
increased its total dividend by one cent quarterly, indicating
slow, but steady, sustainable growth that investors can likely
count on for many more years to come.
Action to Take -->
Although the agricultural processor giant could continue to
fall victim to rising commodity costs, which would hurt margins,
ADM appears poised to weather any storm. The company is well
diversified and caters to fillings one of our most basic human
needs -- food supply. With a solid revenue growth outlook and
history of dividend increases, ADM seems a suitable investment for
a retiree's portfolio.
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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