Lanny’s Recent Purchase – ADM (x2)

Well, well, well.  Hold on tight.  The stock market may as well be considered big red, because that’s the only color we have been seeing as of late.  And, I made another purchase.  A very familiar one as you can see by the title.  It’s been a very confusing blood bath out there, as I like to call it.  This has made my stomach drop everyday.  Everyday, only because I wish I had $30K in cash ready to just fire away at the market.  It’s incredible the, as Jim Cramer from CNBC calls it, “accidental high yielders” that are out there.  I believe Archer Daniels (ADM) to be one of them.  Fire Away!

Archer Daniels Midland Co. (ADM) x2

I purchased ADM again for the second time, about a month or so since my first purchase of them back in December of 50 shares.  On the same note – Bert made a smooth purchase as well last week over this dividend aristocrat.  Nice job Bert!  I wanted to stick to my goals and this purchase was just at the $3,000 mark, as it is one of my goals to make larger purchases to reduce my trading fees.   Additionally, I also explained my 5 reasons why I am making larger purchases this year – I think so far, it’s off to a fun start.

However, I need to make a note.  I bought this stock with a limit order at $33.26 that was placed last week and this triggered on the 14th of January.  Well… the Friday of the 15th came in pouring a bad storm and the stock plummeted to close at $31.51 or a whopping $1.75 cheaper!  I bought a gallop of 90 shares at this price and man, that one is funny – That is $157.50 that I could have used to buy 5 more fricken shares almost of this company.  DAMMIT!  Timing was one day off.  What can you do about that?  Can never predict, as we all know.

Now… why did I purchase?  Outside of it being one of the lowest debt to equity dividend aristocratsthis one definitely hit some wonderful metrics on the dividend diplomat stock screener.  Here is the skinny, since I purchased this stock barely 30 days ago and Bert has already sang his song from last week.  Here we go: 

1.) Price to Earnings (P/E) Ratio: I purchased the stock at $33.26 this time around, which based on future earnings, gave me a P/E of 10.80.  No brainer and showed undervaluation.

2.) Dividend Yield: at the price point of $33.26 with a dividend of $1.12 – a yield at 3.37% is not common for ADM.  In fact, their 5 year dividend yield average is 2.40%.  Therefore, we are talking a full percent higher.  Loving it.   (see Why I compare the yield to the 5 year average)

3.) The payout ratio:  Based on those future earnings, the payout ratio calculated out to be 36%.  Extremely low with AMPLE room for dividend growth.   Keep increasing that cash flow back to me please!

4.) Dividend Growth Rate:  After increasing their dividend 41 straight + years, the 5 year dividend growth rate stands at 13.52% and the 3 year at 17.18%.  It is “OKAY” if this slows down, given the current economic environment and the difficulty in maintaining a high dividend growth rate in an earnings pressured environment.  They can cut their growth rate in half for all I care at this point.  But.. I do love my dividend growth rate.

This purchase, all in all, fits the mold of where my goals for 2016 was leaning towards.  I do not believe this company will keep e up at night, with $20B in market capitalization, they are one of the biggest players in the production of feed/ingredients for food.  We always have to eat right?  I don’t think we are getting skinnier, especially in America.  Bert and I were both fairly keen on this stock and want a larger position – and this was also on Bert’s December stock watch list in 2015.  This further aligns with my focus after KMI’s dividend cut announcement… and I am happy with this purchase, fairly happy.

ADM Stock Purchase (x2) Summary:

Without further ado, here is the summary of my stock purchase.  I bought 90 shares of Archer Daniels Midland Co. (ADM) at $33.26 (3.6% less than last price) triggered by a limit order trade (Expense = 0.23% for trade).  Total Price: 90 X $33.26 + 6.95 = $3,000.35.  Total dividends added to my annual income based on purchase of ADM = 90 X $1.12 = $100.80 added per year or $25.20 per quarter going forward.  I am very excited about adding this dividend aristocrat to my stock portfolio!  This aligns with my goal, is a huge purchase and I jumped my position from 50, to a total of 140 now, and this occurred well before their dividend increase and ex-dividend date (which I predict ex-date to be February 12th).  Therefore, my first dividend will be $39.20… Pumped.  Looking forward to seeing my dividends reinvest at a total now (since I own 140 shares) to pick up more than 1 share per quarter.

What are your thoughts on the purchase?  Making any moves in the downturn during the week of 1/11?  What are you seeing?  scooping up any big dividend aristocrats, such as Target (TGT), Johnson & Johnson (JNJ), Procter & Gamble (PG) or AT&T (T)?  Would you be buying ADM at these levels?  Please share and thank you all so much again for coming by, definitely appreciate it.

-Lanny

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23 thoughts on “Lanny’s Recent Purchase – ADM (x2)

  1. Hi Lanny,

    Well done on adding to ADM. It is a very solid choice as an undervalued aristocrat. This past week has been a rollercoaster. I heard that the long weekend coming up in the US may have had something to do with the sell offs on Friday. I recently initiated a position in JNJ, my first healthcare pick in my portfolio. Thanks again for sharing your analysis of ADM and enjoy the additional passive income!

    Cheers,
    DN

    • Niche,

      Thank you! It has been a stomach dropping ride, eh?

      Nice job initiating JNJ, HUGe company and love them as an aristocrat.

      Of course – love the additional income, now it’s back to reloading the ammo to make another purchase. Put that seat belt on!

      -Lanny

  2. Hello Lanny,

    Solid purchase, you can never go wrong with dividend aristocrats. Nothing like sleeping like a baby at night while collecting dividend. Thanks for you analysis on ADM, i will take a look at it next month purchase.
    Happy dividend hunting.

    Dividend pursuit

    • Pursuit,

      Thank you! Never can go wrong (mostly that is haha) with an aristocrat. This fell nicely within my goals of making larger purchases with a more focus on a no-brainer purchase. Hope the dividends come rolling in starting in March.

      Definitely keep us updated if you buy them – they tanked to the low $31 mark by the end of the week – ripe for a purchase!

      -Lanny

  3. A great buy Lanny, who doesn’t want great shares at cheap prices? Great job hitting so many of your goals at the same time. Definitely a great time to be picking up JNJ and ADM. At times like this, does it make you wish you had held onto more cash?

    Tristan

    • Tristan,

      Have you been going crazy with this market?

      JNJ ADM, TGT – all looking like incredible aristocrats. I wish I was sitting on $500K, hands down haha. But hey – we are all pushing through and making the best of what we have. KEEP GOING is what I say. LETS GO!!!

      -Lanny

  4. Lanny,

    I initiated a position in ADM yesterday. The market is giving us some great buying opportunities. I’m glad to see you staying consistent adding to your portfolio as you can. Don’t worry too much about the price fluctuations as some companies are having 5% intraday swings right now. Keep up the great work!

    MDP

  5. I love it. I had a very similar story yesterday. I had a limit order of $12.25 in for Ford for 166 shares and I ended up getting them all for $11.81/share. It ended up saving me $73.04! The coolest part I noticed is that when that dividend comes on March 1st it will be a smooth $100 even as I had 84 previous shares that I bought back in October. Looking at Ford on an annual basis it currently yields 7% factoring in its special dividend, 5% without.

    I’ll have to check out ADM as I really love following other blogs for ideas and getting stocks on my watch list. I’d suggest taking a look at Ford. It might not pass the debt screener you guys have, but I prefer to value stocks based off FCF. Ford currently trades around 8-9 projected FCF earnings for the year and the dividend with the special is covered under 60% of FCF. It is definitely a stock I am not worried about cutting its base dividend. Plus the future collaboration with Google on driver-less cars will help them a few years down the road.

    • TDM,

      Thanks for coming by. No way?! $11.81 was the snag price? That’s awesome. $100 coming in one swoop, picking you up almost another 10 shares. Amazing… how are those metrics looking?

      Thinking of ADM eh? I’ll loook at Ford – how does their payout ratio look? What’s the price ot earnings?

      Thinking of getting more? Congrats on your purchase and thank you for coming by, as always.

      -Lanny

      • I just did a quick review of ADM. I was amazed to see how trades in step with oil as one of its key businesses is producing ethanol. I’m currently avoiding any kind of oil producers right now as supply is overabundant and the only way for that to happen is for some big players to either go bankrupt or cease productions. Neither of which is near happening anytime soon so things don’t look too pretty on that front. Looking at the FCF, of which I am firm believer, dividends should only be paid from any extra funds in FCF. ADM doesn’t look too hot when looking at the TTM results. They only produced 528M in FCF TTM while currently paying out 670M in dividends. That is a huge no-no for me and I don’t feel comfortable adjusting my future FCF projection any higher than the TTM as I am not familiar with the company and it’s other drivers of future revenue. I wish you luck, but this stock doesn’t look attractive to me at the moment.

        With Ford I would gladly purchase more in the future when I get a chance. Another stock on my radar is LyondellBassell which I had two big purchases of last year. I feel it’s a great play on cheap oil as they are a chemical company who focuses on refining the product not producing it. Their revenue is tied to oil in the final product’s cost, but the margins just keep improving so i have no worries about the companies viability in this low oil environment and their dividend to FCF ratio is roughly 26%. Plenty of room to continually expand the dividend.

  6. Great buy. I picked up shares of ADM last month but with recent drops I may round out my shares at 100. I like your strategy to buy larger lots. I typically buy in 50 or 100 share increments.

    • IH,

      Of course – nothing more exciting than having a nice round number with a position that you’d like to have/want in your portfolio.

      Speaking of – still have time before their ex-date and I believe they increase in February. Just a heads up!

      Thanks IH and talk soon.

      -Lanny

  7. That’s a great buy, despite the slight timing issue… oh, well — in the long run, it wouldn’t matter much. I don’t own ADM and your post is timely, as I’m looking into candidates now — fortunately, I have some cash on hand!

    Cheers
    FerdiS, DivGro

    • FerdiS,

      Thank you for coming by to the blog. You are right, it’s a small timing issue, that I will not even think about after I see the raise and my first dividend reinvestment, that’s for sure. Some cash on hand, eh? PERFECT!! There are quite a few aristocrats that are tempting – ADM, TGT, JNJ, Genuine Parts, AFL to name a few… any one’s that you are strongly considering?

      Thanks again for coming by and excited to see what you do.

      -Lanny

  8. Lanny,
    You and Bert both have the right idea. ADM provides an important commodity that will be important no matter the state of the world barring an apocalypse type event. In that event, I think we have bigger problems…
    I have ADM up near the top of my watch list. I hope I have enough to add it, along with a few other positions.
    Also $100 per year, that a nice fresh chunk of change you no longer have to work to gain.
    Enjoy,
    Gremlin

  9. Solid company with a great history of dividend increases. It’s taking beating, but great long-term history. I’m still watching ADM, but with that almost 6% drop on Friday, it’s getting tempting.

      • Lanny,

        The volatility and premiums were so high when it broke into the upper 20s, I ended up selling a conservative put with about a 90% probability of expiring. The premiums were too juicy OTM to pass up, so I’m just generating some income from ADM right now.

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