Sow the Seeds of Retirement With Deere

by Marc Bastow | March 1, 2013 9:56 am

Don’t look now, but Deere & Co. (NYSE:DE[1]) just rang up its 11th consecutive quarter of revenue growth, and a new annual record of $36.8 billion in sales.

That’s still about 56% below its stated $50 billion annual revenue target, but hey, give them time — that goal is targeted for 2018.

Yes, Deere has big plans for the future, and after a dip in 2008-10, it’s on the right track — its revenue growth is a promising sign for investors looking to make the eponymous tractor, truck and specialty farm-equipment manufacturer part of their investment portfolio:


What’s helping to drive the growth is a combination of demand — people need food[3], there’s increasingly more people, you do the math — and innovation. Deere’s product lineup has expanded dramatically (from 200 new products developed and introduced[4] in the past two years) to take advantage of the smallest applications for “frontier” countries, to huge agribusiness opportunities in the big emerging markets of China, Brazil and India as well as developed markets like the U.S. and Europe.

What’s more impressive is how Deere incorporates the needs of today’s farmers with up-to-date technology: Its latest lineup of tractors includes mounting brackets for hands-free devices like smartphones to tablets and GPS devices, and each installation can be custom-designed to fit the operator’s need and the gear in question.

Of course, increases in revenue don’t mean enough without resulting profit. On that score, Deere is heading in the right direction:


Deere not only is squeezing out profit, but Deere anticipates[6] “global sales of equipment operations to produce $3.4 billion of free operating cash flow in 2013.” Add that cash flow onto a cash pile of $3.7 billion and Deere can easily afford a capex program that runs to about 4% of annual revenues, or just under $1.4 billion in FY2012.

All this growth and momentum for 10 times 2014’s earnings, and projected five-year earnings growth of 10%? That feels a little under-appreciated to me. Even if you have to wait a while to realize the potential, Deere still yields a decent 2.3% — not bad for what has been a resurgent stock in the past few years, and one that at the very least shouldn’t fade away in the years to come.

It’s also not bad considering Deere’s history of dividend growth — including this week’s announced payment hike of 11% to 51 cents per share — and a low 20% payout ratio that means plenty of room to expand it in the future.


Lastly, I also like the stamp of approval from Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A[8], BRK.B[9]), which moved into the stock in November 2012 with a purchase of 4 million shares. Buffett loves companies that generate cash flow, manage capital expenditures and raise dividends annually — Deere fits the bill to a tee.

It all adds up to a company worth at least a lingering look, if not an eventual place in your long-term portfolio.

Marc Bastow is an Assistant Editor at As of this writing, he did not hold a position in any of the aforementioned securities.

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