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Is Deere & Company a sure bet for dividend investors?

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Nothing is certain, but Deere & Company (NYSE: DE) looked promising despite numerous economic and other challenges. The company predicted it would generate net income of between $6.5 billion and $7 billion in fiscal year 2022. But is that reason enough to invest in the name that charted the course of modern agricultural machinery?


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Let’s take a look at the history of Deere & Company and the pros and cons of adding stock to your dividend investment stack. Doing your own research will help you decide whether or not to buy into Deere & Co. want to invest and determine if it offers you the best dividend shares come back to achieve your goals.

History of Deere & Company

Moving from Vermont to the Midwest, John Deere started out as a blacksmith as a blacksmith in Grand Detour, Illinois in the 1830s. He noticed settlers struggled to tame the prairie soil. He beat a broken Scottish steel saw blade on a piece of wood to make a plow, creating a company that still bears his name. By 1849, he had made 2,000 plows from these steel saw blades, which could till the prairie soil in the Midwest without clumping.

In 1912, the company began to expand into tractors. In 1947, John Deere released its first self-propelled combine harvester, the Model 55. The 1960s and 1970s ushered in technological changes that required farmers to work more land to be profitable. Deere set his sights on farm equipment for large-scale farming: large tractors, balers, as well as seed drills and harvesters.

The company has since moved beyond agricultural machinery to create industrial, construction and forestry equipment in the United States, Canada, Europe, India, Argentina, Brazil and South Africa. It works through four segments:

  • Production and precision farming: This division produces medium tractors, combines, cotton pickers, sugar cane harvesters, tillage equipment and more.
  • Small Farming and Grass: This division produces utility tractors, loaders and attachments, lawn mowers, ride-on mowers, commercial mowers, commercial vehicles and more.
  • Construction and forestry: This division produces backhoe loaders, crawler dozers and loaders, backhoe loaders, motor graders, skid steer loaders, wood chippers, road construction equipment and more.
  • Financial services: The Financial Services division produces, sells and rents agricultural, grass, construction and forestry equipment and also provides wholesale financing to dealers.

The Moline, Illinois-based company has begun expanding into machine learning and applying it to agriculture as well. For example, in September 2017, Deere & Company acquired Blue River Technology, which reduces herbicides by spraying only where weeds are present.

For the second quarter ended May 1, 2022, Deere & Company reported net income of $2,098 billion compared to net income of $1,790 billion as of May 2, 2021. Net sales and revenues increased 11% to $13,370 billion in the second quarter of 2022 and over six months it increased 8% to $22.939 billion. Net sales were $12.034 billion for the quarter and $20.565 billion for six months, compared to $10.998 billion and $19.049 billion last year.

While historical results never guarantee future results, it’s also important to consider the track record of the company you plan to invest in. It can give you a lot of information about a particular company and help you decide whether you should invest or not.

Pros & Cons of Deere & Company

Why would you want to invest in Deere & Company and just keep an eye on it instead? Let’s take a look at both the pros and cons of investing in Deere & Company stocks.

Advantages:

  • Brand synonymous with quality: A household name, Deere & Company has cornered several markets as an international rock star. It offers some of the best equipment options in the industry and has a diverse range of specialty equipment including ride-on mowers, balers, combines and loaders.
  • Research and development: Deere spends significant amounts of money on research and development, resulting in top quality and high resale value products. It’s safe to assume strong R&D will continue to benefit the company, given what it’s doing on smart farming solutions that help farmers make choices about when to plant and harvest; drought management, enabling farmers to learn more about drought risks through satellite data; and self-propelled tractors, which the company is constantly trying to improve.
  • Record highs: Over the past year and through 2022, Deere & Company has reported only good numbers and strong guidance. The dividend yield is currently 1.45% with an annual dividend of $4.52, a dividend yield of 1.52% and a dividend payout ratio of 23.58%.

cons:

  • Contest: Deere & Company needs to keep an eye on it, because it’s not the only one producing farm equipment. It has formidable competition in Gehl, Husqvarna Group, Caterpillar Inc., AGCO, the Toro Company, Mahindra, CNH Industrial, Kubota, Claas and more.
  • Not the best dividend stocks in the arena: Speaking of competition, Deere & Company has competition when it comes to dividends. For example, Caterpillar pays an annual dividend of $4.44 per share and has a dividend yield of 2.5%, while Deere offers $4.52 per share with a dividend yield of 1.5%. What about profit versus dividend? In that case, Caterpillar pays 37.2% of its income in dividends, while Deere pays out 23.6% of its income in dividends. A more telling signal is Caterpillar’s increased dividend for 29 straight years compared to Deere & Company’s increase for just 2 straight years. Higher yields and longer dividend growth indicate that Caterpillar is the best dividend choice if you are looking for a high payer.

Is Deere & Company a Good Choice for Dividend?

It is important to recognize that Deere & Company is not the only decent dividend choice. (Look at the 6 best dividend stocks of all time.In a world of competitors and a telltale whip of its stock price this year, Deere & Company has both its struggles and its highs, as do many of its competitors.

It’s a good idea to weigh your goals against the qualities (the highs and lows) of the company you want to invest in.

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