A rich harvest of dividends for this stock

Some projections estimate the worldwide demand for food will double by 2050, which should spur demand for this stock’s products and services.

While success in the agricultural business depends on many changeable factors such as weather and commodity prices, this company has a long history of rising profits—and 85 years of dividend payments.

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ARCHER DANIELS MIDLAND CO. (New York symbol ADM; www.adm.com) processes corn, wheat, soybeans, canola, and other crops to make a variety of food ingredients such as flour, oils and sweeteners. It also makes ethanol from corn.

In the first nine months of 2017, Archer Daniels completed three acquisitions for a total of $187 million. Those included Crosswind Industries, Inc., a Kansas private-label manufacturer of pet treats and foods. The deal enhances Archer Daniels’ animal nutrition business.

In December 2017, the company agreed to sell its Bolivian oilseeds operations to Inversiones Piuranas S.A. That business processes soybeans and sunflower seeds into oils and protein meal.

In the three months ended December 31, 2017, Archer Daniels’ revenue fell 2.6%, to $16.1 billion from $16.5 billion a year earlier. That missed the consensus forecast of $16.7 billion. Lower revenue from its agricultural services business (including transporting and trading crops) offset gains from processing corn and oilseeds.

If you exclude a gain related to U.S. tax reforms and other unusual items, earnings in the quarter rose 9.3%, to $0.82 a share from $0.75. That easily beat the consensus estimate of $0.70.

Dividend Stocks: Dividend raised by 4.7% with March payment

Archer Daniels Midland has also been linked with two other possible takeovers, although it has declined to confirm either of them.

The company may be planning to launch a takeover offer for Bunge Ltd. (New York symbol BG). Bunge is a leading processor of soybeans and oilseeds. It also makes vegetable oil.

Buying Bunge would cost roughly $15 billion. To put that in context, Archer Daniels’ market cap (the total value of all outstanding shares) is $24.4 billion.

A merger would probably face strong anti-trust hurdles, as it would reduce the number of major agricultural processing firms from four to three. However, buying Bunge would let Archer Daniels cut its operating costs. That would help it better cope with erratic crop prices. The company could also sell some of Bunge’s North American operations to win regulatory approval.

Earlier, the company denied media reports that it was planning to acquire the spreads division of Unilever plc (New York symbol UL). Its operations make margarine and related products under several brands, including Flora, Stork and I Can’t Believe It’s Not Butter. Unilever has now entered a binding deal to sell the business to U.S. private equity firm KKR for 6.83 billion euros.

While that type of consumer products business is more profitable than Archer’s main grain trading and processing operations, the steep selling price is roughly a third of Archer Daniel Midland’s market cap.

The company will probably earn $2.80 a share in 2018, and the stock trades at a moderate 15.0 times that estimate.

Recommendation in TSI Dividend Advisor: Archer Daniels Midland is a buy. 

For our recent report on a Canadian utility that has additional support for its dividend, read Two companies contribute to this dividend.

For our recent report on a key source of dividend income, read 10 keys to picking the best Canadian income trusts and real estate investment trusts (REITs).



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