LAS VEGAS, NEVADA – JANUARY 05: John Deere booth signage is displayed at CES 2023 at the Las Vegas … [+]
I’d like to share my simple “Made for 2025” Dividend Plan with you. It’s a simple, safe strategy that identifies dividend stocks with payouts set to surge higher.
As these divvies pop, so do their associated stock prices.
The truth is, this proven system works no matter what the economy, or the Fed (or even the executive branch of the federal government!) is doing. It’s the path to peppy price gains from protected payers.
Let’s talk about a timely example—a dividend dip to enjoy! On the campaign trail, President-Elect Trump presented us with a pullback in perennial dividend grower Deere & Co (DE) thanks to these comments:
“They’ve announced a few days ago that they are going to move a lot of their manufacturing business to Mexico. I am just notifying John Deere right now that if you do that, we are putting a 200% tariff on everything that you want to sell into the United States.”
Obviously, Deere will keep everything in the US until 2028 (at least). In the meantime, good conditions for grain should boost its cyclical business that will power its payout (and stock price) higher. Nothing runs like Deere when grain prices rise. It’s a “go to” manufacturer and distributor for agricultural, construction and forestry equipment.
To own Deere during the rise, it is best to buy when grains—specifically wheat prices—are low. Troughs in wheat tend to mark nadirs in Deere’s profits, signaling a future upcycle. As contrarian investors we want to buy DE when wheat is low rather than high.
Buy This Dividend Growth Stock When Wheat Prices Are Low
Over the last 20 years, wheat and grain prices have rallied and reversed several times. But there’s been one consistency for the company, which is the lynchpin for Deere’s big 2,000% stock returns over the past 20 years—dishing cash to shareholders.
The blue bar below represents the cash Deere has collected over the past two decades. It’s smartly deployed that money to acquire new businesses (and believe me, most acquirers are nowhere near as savvy!), invest in its core business and build a new financial services arm. But most of the tractor maker’s cash—a massive 60%—has been returned to shareholders through dividends and buybacks:
Deere Returns Cash to Shareholders
Let’s “zoom in” on this shareholder return trend over the past 10 years. Deere has hiked its dividend by 145%, most dramatically during wheat’s last big rally. During this time, management bought back 21% of the stock’s outstanding float:
DE Shares Outstanding, Dividends
This is outstanding for shareholders. Fewer shares mean fewer dividends to pay, “creating” more cash for Deere to raise its divvie. This virtuous cycle swells investors’ pockets.
In the meantime, management knows how to deal with low wheat prices: control costs, keep generating cash and be ready for that next boom.
Ag prices will take off again soon. It’s a matter of when, not if. They are scraping the basement floor right now.
Meanwhile, Deere has traded sideways since 2022, so it’s “dead money” to Wall Street. But management sees the light at the end of this cyclical tunnel—they just hiked the dividend by 10.2%. Quite the power move!
Brett Owens is Chief Investment Strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: Your Early Retirement Portfolio: Huge Dividends—Every Month—Forever.
Disclosure: none
