Back to top

Analyst Blog

Deere & Co. (DE - Analyst Report) in an effort to return more value to its shareholders hiked its quarterly dividend by 5 cents to 35 cents. This translates to a 17% increase from the prior dividend of 30 cents. The increased dividend will be paid on February 1, 2011, to stockholders of record on December 31, 2010. Deere’s shares jumped 1.9% to $76.14 on the news.

The dividend increase does not come as a surprise. During the earnings call, on November 24, management had stated that it intends to deliver a series of moderate dividend hikes while targeting an average 25%–35% pay out ratio.

Deere has a consistent track record of paying quarterly dividends and has been increasing its dividend every year since 2004, supported by its cash position and its ability to generate healthy cash flow. The last dividend hike came in May when the company boosted its quarterly dividend by 2 cents to 30 cents, a 7% increase.

The company has increased its dividend eight times in the span of 2004 to 2010, bringing up its dividend of 11 cents to the current level of 35 cents, reflecting a total dividend growth of 218%. In the 2004-2010 timeframe the company has returned $2.67 billion to its shareholders through dividends.

Deere’s nearest peer, Caterpillar Inc (CAT - Analyst Report), had upped its dividend by 2 cents or 5% to 44 cents in June 2010 after a gap of two years. Deere’s current annualized dividend yield of 1.6% lags Caterpillar’s annualized dividend yield of 2.1%. Deere’s dividend payout ratio of 27% is much less than Caterpillar’s 56%.

However, Deere is at a cash-rich with a cash horde of $3.79 billion compared with Caterpillar’s $2.3 billion. Further, Deere commands industry leading net margins; its trailing twelve months’ net margin of 7.17% surpassed Caterpillar’s 5.31% and the industry margin of 5.16%. We thus believe Deere has ample scope to increase its dividend yield and payout ratio.

We appreciate Deere’s focus on creating long-term value for its investors. Deere’s strong cash flow positions the company to fund future growth opportunities as well as return cash to shareholders. Given Deere’s cash reserve of $3.79 billion, we believe it has ample liquidity to meet its funding needs.

Deere can thus afford to pay dividends and, we believe, resume share repurchases or pay down debt, thus benefiting earnings. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
PLANAR SYST… PLNR 4.44 +5.21%
BITAUTO HOL… BITA 81.71 +5.12%
CTPARTNERS… CTP 16.66 +4.26%
CHINA BIOLO… CBPO 47.91 +3.30%
MALLINCKROD… MNK 72.94 +2.85%