Looking Past a Nice Dividend: Deere & Company (DE) and More

Page 1 of 2

I'm going to compare two completely different stocks, Deere & Company (NYSE:DE) and Nordic American Tanker Ltd (NYSE:NAT), that I bought about 3 years ago as my first endeavor into the market (Both Dividend Reinvestment Plans (DRIPs)). Deere has done marvelously tripling my investment; Nordic, on the other hand, has gone in the opposite direction with about 2/3 of that investment gone. On the bright side, I am in the green when putting them together. I enjoy looking back at the causes of Deere succeeding and Nordic failing?

We will start off with the bad; when I first stumbled upon Nordic I was amazed that a company was paying a 14% dividend yield, and it must be great for a DRIP. Unfortunately I did not take two key steps to investigate a dividend.

Deere & Company (NYSE:DE)Research the Industry

What I did not see with NAT was that every other similar stock in the industry was also paying a massive dividend yield. Also the oil tanker shipping industry is very volatile (dependence on oil and other shipping materials), and definitely not ideal for a safe, long term, dividend paying investment.

Can they actually pay that Dividend

What I also didn't know was that NAT pretty much pays out all of their profits, which can easily be seen by looking at one key factor Payout Ratio (Basically what percentage of earnings are being paid out to shareholders). If I would of taken a look, NAT had a Payout Ratio in the 80s, and as the business started failing the Ratio went over 100; it’s never a good idea to be paying out more to investors than you are making. A high payout ratio with bad future earnings growth is a terrible combination

Now to the good with Deere, my best performer ever definitely will always have a place in my investing heart, but why was Deere a good investment?

Research the Industry

The agriculture industry has done great as of late and I feel a key reason is people need food, industries (ex: ethanol) need crops, the demand is not going to stop and will only continue to grow as the world’s populations also grows. Furthermore Deere has a great track record, they have been around the block and have a solid management team.

Can they actually pay that Dividend

Yes, when we look at their payout ratio, a modest 20% in a stock that has growth potential is nice and gives them the opportunity to continue increasing it as the company grows.

A stock that passes both of these categories and that I am contemplating adding to my portfolio is American States Water Co (NYSE:AWR).

Research the Industry

American purchases, produces, and distributes water in California and also provides electricity in some parts. Water is something you can’t live without, and with their legend-like presence in California, I believe they have an excellent economic moat in place.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 30 percentage points in 13 months Learn how!

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!