Deere & Company DE has upped its quarterly dividend by 9 cents or 18% to 60 cents per share. This marks the 12th consecutive year of dividend raise for the company. The increased dividend is payable on Aug 1, 2014 to shareholders of record as of Jun 30, 2014.
The dividend increase comes after exactly a year. In Feb 2013, Deere had increased its quarterly dividend by 5 cents or 11% to 51 cents. Presently, the annualized dividend yield of Deere is 2.24%. The increased dividend will increase the yield to 2.64%. At current levels, Deere's dividend yield -- 5 Year Average of 2.06%, 5 Year Dividend Growth Rate of 12.85% and Payout Ratio of 22.04% are above the industry average of 1.97%, -4.43% and 15.38% respectively.
This news of dividend hike follows Deere's second quarter fiscal 2014 results. Deere's earnings per share dipped 4% to $2.65 but beat the Zacks Consensus Estimate of $2.40, delivering an earnings surprise of 10%. Deere's worldwide total sales declined 9% year over year to $9.95 billion, surpassing the Zacks Consensus Estimate of $9.55 billion.
As of Apr 31, 2014, Deere had cash and cash equivalents of $3.1 billion, down from $3.6 billion as of Mar 31, 2013. The company is intent on providing consistent cash dividends, thereby increasing shareholders' value. It expects to deliver increased dividends, targeting an average payout ratio in the band of 25–30%.
Earlier this month, mining equipment maker Joy Global Inc. JOY announced a 14% hike in the quarterly dividend rate to 20 cents per share from the previous rate of 17.5 cents.
Deere expects equipment sales to decrease around 4% year over year for the third quarter of fiscal 2014. For fiscal 2014, Deere revised its forecast to a 4% decline from the previous expectation of a 3% dip. Deere, however, maintained its net income projection of $3.3 billion for fiscal 2014.
Segment-wise, Deere projects Agriculture and Turf equipment sales to decline 7% for fiscal 2014, wider than the previous expectation of a 6% fall. This includes a negative currency translation effect of about 1%. Farm income is expected to be lower than 2013, which will dampen demand for large farm equipment.
Given the increasing global demand for food, shelter and infrastructure, we believe that the long-term outlook for Deere remains strong. In the near term, despite high levels of farm income, farmer sentiment regarding capital goods purchase is getting more conservative due to lower commodity prices.
Deere will nevertheless benefit from recovery in the construction sector and stabilization in the European economy. Furthermore, given its strong balance sheet, the company can maintain its commitment toward shareholders by increasing dividends and repurchasing shares.
Moline, IL-based Deere is engaged in the worldwide production and distribution of agricultural and forestry equipment, construction equipment and engines. The company sells products in the U.S. and Canada through branch offices as well as distributors and operates through dealers to resell products internationally.
Deere currently holds a Zacks Rank #4 (Sell). Investors interested in the mining equipment industry may consider stocks like Caterpillar Inc. CAT and Komatsu Ltd. (KMTUY). Both these stocks carry a Zacks Rank #1 (Strong Buy).
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