Agriculture stocks have performed well over the past few years due to rising agriculture commodity prices. Returns could continue to be strong, thanks to a long-term growth catalyst: the rising global population.
In fact, the United Nations states that the world will need to produce 60% more food to feed an estimated 9.3 billion people by 2050.
Investors can capitalize on this global trend by selecting top dividend-paying agriculture stocks.
Archer-Daniels-Midland (ADM)
Archer-Daniels-Midland (NYSE:ADM) is the largest publicly traded farmland product company in the U.S. The company generates annual revenue of approximately $85 billion.
As the largest public farmland product company in the country, Archer-Daniels-Midland benefits from economies of size and scale. The company has approximately 450 crop procurement locations, 320 food- and feed-processing facilities, and more than 60 innovation centers. The company also has a significant presence in international markets due to its global distribution system.
Archer-Daniels-Midland’s business model has proven to be very recession-proof as food demand often remains consistent during economic downturns. The company saw earnings per share (EPS) grow almost 29% from 2007 to 2009. More recently, Archer-Daniels-Midland weathered the worst of the Covid-19 pandemic extremely well as bottom-line results improved 29% from 2019 to 2020.
Archer-Daniels-Midland has raised its dividend for 50 years, qualifying the company as a Dividend Aristocrat and a Dividend King. It is likely that Archer-Daniels-Midland’s dividend growth streak continues as the expected payout ratio for 2022 is just 31%. Shares of the company yield 2.2%, slightly above the average yield of 1.5% for the S&P 500.
Bunge Limited (BG)
Bunge Limited (NYSE:BG) 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.
Bunge stock has performed well in the past 12 months with an 18% return. The company’s strong balance sheet and liquidity position provides it with a competitive advantage even in adverse market conditions. Even though the global supply chain bottlenecks persist, BG has profited from the rise in crop prices since a growing global population has raised the need for more food-grade oils and well-fed livestock.
On May 3, the company announced Q1 2023 results, reporting Q1 GAAP EPS of $3.26, which beat the markets’ estimates by 2 cents. Bunge reported revenues of $15.33 billion, down 3.5% year-over-year. Although results were down from the notably good performance last year, the agribusiness sector nonetheless performed strongly. Results for refined and specialty oils were better in every region, suggesting good demand trends and efficient supply chain management. In addition, BG announced specific initiatives to increase business capabilities, expand footprint and promote growth. Lastly, the management maintained its guidance for full-year 2023 adjusted earnings per share of at least $11.
Bunge Limited has grown its EPS by a compound annual growth rate (CAGR) of 7.9% over the past nine years. Indeed, the company has experienced significant growth in EPS in the last two years. Bunge 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.
BG has a low dividend payout ratio of approximately 30% for the current year. The stock has a 2.5% dividend yield.
Scotts Miracle-Gro (SMG)
Scotts Miracle-Gro (NYSE:SMG) is one of the world’s leading marketers of branded consumer lawn and garden as well as hydroponic and indoor growing products. The company offers fertilizers, grass seed products, spreaders, outdoor cleaners and any lawn-related weed-, pest- and disease-control products. Scotts Miracle-Gro generates around $3.9 billion in annual revenue.
The company recorded first-quarter sales of $1.53 billion, a 9% decline compared to Q2 2022. This was primarily driven by a 54% sales decline in the Hawthorne division and a 2% sales decline in the U.S. Consumer division. The decline in Hawthorne’s sales reflected the continued challenges in the hydroponic industry. The company is currently being pressured by higher commodity prices that have led to a significant margin decline despite multiple pricing actions. Consequently, adjusted income-per-share came in at $3.78 compared to adjusted income-per-share of $5.03 in the same period of last year.
To get the business back on the right track and return profitability in both segments to an appropriate level, the company has launched Project Springboard 2.0. The project is now expected to deliver over $200 million of annualized savings in fiscal 2023 ahead of schedule, with a line of sight to additional savings through fiscal 2024. For fiscal 2023, management expects mid-single-digit percentage growth in adjusted operating income versus fiscal 2022.
Having well-known and trusted brands gives Scotts Miracle-Gro a leg up on the competition. Home improvement stores, both national and local, favor the company’s products as they can help drive store traffic. Brand recognition and prime shelf space affords the company the ability to charge premium prices compared to its competitors without negatively impacting its market share. Scotts Miracle-Gro is the rare company that can increase its product pricing while also improving its standing in its industry.
Scotts Miracle-Gro has a growing hydroponics business as well. Currently just a 25% contributor to sales, this area should become more important as the need for indoor and year-round food production increases along with food demand.
Scotts Miracle-Gro has raised its dividend for the past 12 years. We believe that the company will continue to provide future dividend growth as well. Shares of the company yield 4%, more than twice the average yield of the S&P 500 Index.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
