Opportunity… or a Bigger Red Flag?
I’ve been looking for the best dividends in the market for over 13 years. Time after time, I keep coming back to this question.
When we buy shares of a stock, it represents an ownership share of the underlying company. We can use different metrics to determine how much our shares should be worth, but at the end of the day, the market sets that value. And a big part of that calculation is investor sentiment.
If you’ve been in the market for any length of time—especially over the past four years—you know that investor-sentiment-triggered movements in shares can happen out of nowhere. Sure, sometimes they are due to company-specific or industry-specific news. But there are definitely times when I cannot find a single catalyst for the move.
Since we’re long-term investors, the “why” behind a move is more important. Because most of the time the catalyst, or lack thereof, only matters in the short term. Instead of panicking, we can use these movements to our advantage. But only if we can answer the question: opportunity, or a bigger red flag?
Above-Average Yield from This Dividend Aristocrat
We all know that Dividend Aristocrats can make great long-term holdings. In order to qualify for this distinction a company has to increase its dividend for 25 consecutive years. And although past performance doesn’t guarantee future performance, once a company achieves this title it is usually in a place to continue that success.
There are currently 66 companies labeled Dividend Aristocrats. Their dividend yields range from 0.26% to 5.72% with an average of 2.34%. I firmly believe that we deserve at least 3.5%, which means there is a good chunk of the list I wouldn’t recommend for the portfolio. However, 2024 has given us not one, but two chances to lock in an above-average yield on Archer-Daniels-Midland (ADM).
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If you’re not familiar with the company, it’s a global agricultural giant. Although it doesn’t own farms, it works with growers to transport, process, and store commodities like corn, soybeans, and wheat. The end use for the products is both human and animal nutrition. It’s a dominant player in the farm-to-fork process.
But it’s hard to get a 3.5% yield from ADM. Yet, the opportunity has been there twice in 2024. Once at the beginning of the year… and again right now.
In January, the company disclosed that a voluntary document request from the SEC had triggered a DOJ investigation. The CFO was suspended and there was an internal probe into accounting practices related to its Nutrition Division. Shares plummeted 24% on the news… and its yield was finally worth a look.
The investigation concerned financial accounting related to the transfer of goods between business segments. These numbers were also tied to executive bonuses. The investigation caused the company to delay the release of its fourth-quarter and full-year earnings back in January. Plus, ADM had to go back and correct six years of financial data.
It was a great buying opportunity. By July, shares were back over $65 and the yield far below our target. But as the chart above shows, we’re back in a buying opportunity.
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A Message from Kelly: |
Getting Its Ducks in a Row
Two weeks ago, ADM should have released its third-quarter earnings. Instead, it released preliminary financial results and postponed its third-quarter earnings call. After ongoing talks with the SEC, the company will amend its fiscal year 2023 10-K as well as the 10-Q for the first and second quarters of 2024. There are also concerns over misclassified transactions in the Q3 numbers as well.
Yes, the same type of transfer transactions that were spotted back in January. On top of that, the preliminary results were down year over year. Of course, shares slid on the news.
ADM’s CFO agreed to resign back in April. And just last week it was announced that the company’s chief compliance officer will be leaving the company early next year for personal reasons.
Is now the time to grab these shares at an unbelievable 3.7% yield?
It’s almost been a year and the company can’t seem to get its accounting in order. That’s an insane thing to say about a company that’s been around since 1902 with enough cash flow to not only pay but raise its dividend for the past 52 years.
The agricultural giant is integral to our food supply. The company itself isn’t going anywhere, but fishy accounting could potentially be a threat to the dividend over the next few years.
My official recommendation right now is a hold. If you have shares in your portfolio, don’t do anything right now. If you don’t own shares you want to make sure that ADM is on your watchlist.
We need to see what the company says on its actual earnings call when it happens. I want to see if management might actually have some solutions… or if we get excuses. If a solution is presented, then it’ll be time to grab these shares before they climb past $57.14 so we can lock in a 3.5% yield.
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For more income now, and in the future,
Kelly Green
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