Archer-Daniels-Midland (NYSE:ADM) Is Paying Out A Larger Dividend Than Last Year

The board of Archer-Daniels-Midland Company (NYSE:ADM) has announced that it will be paying its dividend of $0.45 on the 2nd of March, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.2%, which is fairly typical for the industry.

Check out our latest analysis for Archer-Daniels-Midland

Archer-Daniels-Midland's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Archer-Daniels-Midland was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 11.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 24%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Archer-Daniels-Midland Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from $0.70 total annually to $1.80. This means that it has been growing its distributions at 9.9% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Archer-Daniels-Midland has been growing its earnings per share at 23% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Archer-Daniels-Midland Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Archer-Daniels-Midland is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Archer-Daniels-Midland that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.