ADM - Archer-Daniels-Midland: Undervalued With Strong Dividend Growth

2024-06-04 08:01:25 ET

Summary

• Archer-Daniels-Midland operates as one of the largest companies within the agricultural space and currently trades at a discount to fair value.
• Segments within ADM have seen operating profit decreases due to external factors, rather than fundamental flaws of the business.
• The dividend yield is low at 3.2% but it has averaged a high single-digit CAGR over the last decade, making it a good dividend growth company.
• I estimate a fair value of about $67 per share based on my dividend discount calculation.
• ADM seems to be affected by the higher interest rate environment. This has caused operating margins to shrink due to the rise in cost of goods and lower volumes.

Overview

As a dividend investor, I am always on the lookout for a good deal to add to my annual dividend income total. I prefer to find companies that have a history of increasing their dividends year over year on a consistent basis. Potential candidates are companies that also have the potential to continue increasing their dividend payouts through higher levels of free cash flow. Lastly, I look for opportunities that trade at attractive valuation metrics and have good upside potential. I believe that Archer-Daniels-Midland ( ADM ) checks off these boxes, and I aim to provide some fair insights here on why I believe this company to a Buy....

For further details see: