At CES 2023 in Las Vegas, John Deere showcased its latest innovations, indicating the company’s focus on technological advancement in conjunction with traditional farming practices. CES, recognized as the world’s largest annual consumer technology trade show, attracted over 100,000 attendees, featuring around 3,200 exhibitors. Amid discussions on the agriculture sector’s future—particularly focusing on dividend growth—from companies like Deere, it’s important to consider strategies for investing in dividend stocks, especially in an unpredictable economy.
One such investment strategy is the “Made for 2025” Dividend Plan, which emphasizes identifying dividend stocks poised for higher payouts. This method aims to capitalize on both stable dividend returns and the potential for stock price appreciation. It is underlined by the understanding that such strategies can withstand external economic pressures, whether they stem from market fluctuations, government policies, or Federal Reserve actions. A practical example of this strategy involves examining John Deere and its cyclical business tied closely to grain prices, particularly wheat.
The conversation around Deere’s performance became particularly significant following President-Elect Trump’s comments regarding tariffs on companies moving manufacturing abroad. The signals from these comments suggest that Deere will maintain its U.S. manufacturing base, at least until 2028, while enjoying favorable conditions in agricultural markets. As grain prices ideally rise, Deere, as a key manufacturer and distributor of agricultural equipment, stands to benefit significantly, leading to increased dividends and stock prices.
Investors are advised to strategically purchase shares in Deere when wheat prices are low, as these troughs often indicate impending profit increases for the firm. Historical data over the past two decades has shown that fluctuations in grain prices are common, but John Deere has consistently returned cash to shareholders through dividends and buybacks. Such shareholder returns—60% of the cash collected over the past two decades being returned through these means—underline the company’s commitment to enhancing shareholder value.
Examining the past ten years reveals that Deere has increased its dividend by 145%, particularly during wheat price rallies, while concurrently reducing its shares outstanding through buybacks. This reduction helps create a “virtuous cycle” where fewer shares translate to a higher dividend per share, ultimately benefiting shareholders. Management is also equipped to navigate lower wheat prices by focusing on cost control, consistent cash generation, and preparation for future price hikes.
Currently, Deere’s stock has remained relatively flat since 2022, described as “dead money” by Wall Street analysts. However, the company’s leadership remains optimistic about future agricultural price increases. Notably, they have recently raised the dividend by 10.2%, signaling a positive outlook on the company’s ability to weather economic fluctuations. With such strategies in place, Deere continues to position itself as a sound investment for those seeking reliable income through dividend stocks amidst changing agricultural market conditions.
