When investors are looking for their next great dividend stock, they tend to gravitate towards high dividend stocks like connsumer staples, utilities, and banks, as examples. One industry that may not immediately come to mind is agriculture stocks, some of which can be quite cyclical. 

However, the best of the best have great dividend stock potential, and in this article, we’ll take a look at three examples of agricultural companies with consistent business models and dividend growth.

Deere & Company (DE)

Deere & Company is the largest manufacturer of farm equipment in the world. The company also makes equipment used in construction, forestry & turf care, produces engines and provides financial solutions to its customers.

Deere is the largest player in the agricultural machinery manufacturing industry. This means that it is hard for new competitors to steal market share from Deere, especially since it is difficult to replicate the company’s global sales and dealership network.

In late November, Deere reported (11/22/23) financial results for the fourth quarter of fiscal 2023. Sales slipped -1% over the prior year’s quarter as the benefit from strong demand for farm and construction equipment was offset by a decrease in the sales of the Production & Precision Ag and Small Ag & Turf segments. Deere grew its earnings-per-share 11%, from $7.44 to $8.26, and beat the analysts’ consensus by $0.85. 

Due to this deceleration and its expectation for volume sales to revert to mid-cycle levels, Deere provided lackluster guidance for the new fiscal year, expecting earnings of $7.75-$8.25 billion. 

There are many factors that could fuel growth for Deere. Long-term global economic growth and share buybacks could add to the growth thesis. The company could also ramp up buybacks in the future. Deere has also been growing its presence in the higher-growth construction machinery market, both organically as well as via acquisitions.

Deere’s dividend payout ratio has never been especially high. The payout ratio has trended downwards as earnings-per-share have risen considerably. The payout ratio is under 20% for the current fiscal year. We believe that the dividend is quite safe, and currently yields 1.5%.

Bunge Limited (BG)

Bunge is one of the largest agribusiness and food companies globally, with integrated operations that stretch from farmer to consumer. The company buys, sells, stores, transports, and processes oilseeds and grains to make protein meals for animal feed and edible oil products for commercial customers. Bunge also produces sugar and ethanol from sugarcane, mills wheat, and corn, and sells fertilizers. 

On October 26th, 2023, the company announced Q3 2023 results, reporting GAAP EPS of $2.99, which beat the markets’ estimates by $0.49. Bunge reported revenues of $14.23 billion, down 15.1% year-over-year. Bunge has announced a robust performance for the third quarter, driven by effective execution and strategic initiatives. The company has seen a mixed performance in its Agribusiness sector, with higher processing results overshadowing lower outcomes in Merchandising. However, the Refined and Specialty Oils segment showed notable strength, particularly in North America, contributing positively to the overall results. 

An important development for the company has been the progress on the Viterra transaction, a strategic combination that received overwhelming shareholder support. This transaction is expected to accelerate Bunge’s growth trajectory significantly. Finally, reflecting the company’s strong performance and confidence in its prospects, Bunge is increasing its full-year adjusted EPS outlook to at least $12.50.

BG now has an increasing opportunity to expand its revenue. For instance, as the world advances toward sustainability, the growth in renewable diesel, produced from crop oils, is currently a modest portion of Bunge's business but may become big in the future. Additionally, we have assumed a ~6.8% dividend growth, resulting in a dividend payment of $3.68 in 2028.

BG stock currently yields 3%.

FMC Corp. (FMC)

FMC Corporation is an agricultural sciences company that provides crop protection, plant health, and professional pest and turf management products. Through acquisitions, FMC is now one of the five largest patented crop chemical companies. The company markets its products through its own sales organization and through alliance partners, independent distributors, and sales representatives. It operates in North America, Latin America, Europe, the Middle East, Africa, and Asia. 

On February 6th, 2024, FMC released fourth quarter and full year 2023 results for the period ending December 31st, 2023. For the quarter, the company reported revenue of $1.15 billion, down 29% versus the fourth quarter of 2022, and adjusted earnings per diluted share of $1.07, down 55% versus the same quarter previous year. Quarterly revenue was predominantly driven by a 25% decrease in volume and a 5% decline from price increases in North America, EMEA, and Asia, offset by a 1% foreign exchange effects. 

For the full year, FMC reported revenue of $4.49 billion, a decrease of 23% compared to 2022. As a result, full year adjusted earnings were $3.78 per diluted share, a decrease of 49% compared to the $7.41 per diluted share in 2022. 

FMC’s management forecasts full-year 2024 revenues between $4.50 billion and $4.70 billion, indicating a 2.5% increase at the midpoint compared to 2023, mainly fueled by new product growth in the second half. Adjusted EBITDA is set to be $900 million to $1.05 billion, remaining stable year-over-year. Adjusted EPS is expected to range from $3.23 to $4.41, with a slight increase of 1% at the midpoint. Lastly, free cash flow is anticipated to see a substantial rise, aiming for $400 to $600 million.

We expect rising demand from agricultural markets that will drive strong sales of fertilizer in the years ahead. Growth from emerging geographies should also be particularly healthy. Costs will continue to be a headwind and are driven by inflation. FMC stock currently yields 4.3%.