Let’s do some Dividend Farming. DE

TGIF. It is another Friday, and we figured it was another good opportunity to buy another stock for the weekend. The S&P might have just made another bottom on 1/20/16. We are only 2 days after the bottom, so who knows if it will hold or go back down. But dollar cost averaging or entire portfolio will keep us buying.  So let’s do some dividend farming.

DE-Toy

One way of looking at dividend stocks is to look at it like planting a tree. The day you plant it, the tree might only give you a few pieces of fruit. After 10 years of growing, the tree will produce a lot of fruit to eat. The best time to plant trees was 10 years ago, the next best time to plant one is today.

We don’t own any heavy equipment manufactures yet. There are several best of breed heavy equipment manufacturers, in their own categories. We are going to select the one in farming to keep with our tree analogy. The best in breed for farming is Deere (DE), but you might know them better as John Deere, the large green equipment you might see driving down the road.


We are starting with them because we always need food. With mining equipment, the commodity bubble could last for a while, but farms need to make more food every year. While they can put off buying new equipment, that will lead to pent-up demand. As for a mining, this will happen to, but we believe at a slower pace.

Value

Currently, Deere (DE) is very cheap. The company is selling for less than their revenue, at a P/S ratio of .92. As a comparison, AT&T (T) sell for a 1.5 P/S ratio. Deere (DE) is much lower and cheaper. And I do realize that is like comparing apples and cell phones (coincidence, I think not). But Deere (DE) is selling for a 25% discount to its 52 week high and AT&T is only 3% off its own. Now we still like AT&T (T), but we also believe in diversification.

Dividend Farming

Another way to show Deere (DE) is cheap is it has a 3.2% dividend yield. If we would have bought at the 52 week high, we would only get a 2.4% Yield. That is a 33% pay raise. Also, they have paid and raised their dividend since 2004, and they have paid some dividend since at least 1971. The company has been in business since 1837.

With our growing trees example, we will compare it with Deere (DE). We could have bought 1 share for about $40 ten years ago, and today Deere (DE) would have doubled to $80. The dividend payment went way up from about $0.61 to $2.40 per share. That would have brought your YOC (yield on cost) to 6% today, double our 3% I just got it for today. On top of the stock doubling, your total dividends received over that time would be $15.56. That adds up to a 9% growth rate without even reinvesting the dividends. This is a tree I want to hold for the next 10 years, hopefully longer.

Dividend Farming Purchase

So, we bought 4 shares at $303.51, including those commissions the tree elves keep charging us. We will start our farming career with $9.60 a year in dividend from Deere (DE). With our garden on the side of the house, we plan on them both working out. It will probably be a while before our dividends pay for one of those large green John Deere tractors, but our 300 Square foot garden probably does not need one. Although, we would be happy for someone to donate 1 to us.

How do you do your dividend farming? Please share in the comment section below.

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Disclosure: STAG – We own shares.

 

 

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