We recently compiled a list of the 10 Best Halal Dividend Stocks To Invest In. In this article, we are going to take a look at where Archer-Daniels-Midland Company (NYSE:ADM) stands against the other halal dividend stocks.
Halal stocks are shares in companies that adhere to Shariah law. These companies operate in accordance with Islamic principles, avoiding industries such as alcohol, gambling, tobacco, and non-Islamic finance. They also maintain ethical business practices, ensuring their revenue sources are consistent with Islamic values. The S&P High Yield Dividend Aristocrats Shariah index tracks the performance of Shariah-compliant companies from the Composite 1500 that have a history of consistently raising their dividends for at least 20 years. These companies follow a managed dividend strategy, ensuring steady growth in dividend payouts.
When investing in halal stocks, it’s important for investors to carefully consider a company’s balance sheet. Companies with debt exceeding 33% of their market value are disqualified from halal investing, though this ratio can fluctuate for some businesses. According to a World Bank report, the Islamic finance industry has grown quickly in the last decade, with an annual growth rate of 10-12%. Currently, Sharia-compliant financial assets are valued at approximately $2 trillion, encompassing both bank and non-bank institutions, as well as capital markets, money markets, and insurance.
Also read: 10 Best Diversified Dividend Stocks To Buy Now
Halal investing is still a relatively new concept in the US, where Muslims make up around 1% of the population, as of 2020. In the past, older generations of Muslims typically focused on real estate and physical gold as investments or chose stocks recommended by friends and community members. The complexities of Islamic finance have led many to overlook it. However, this is beginning to change as technology advances and demographic trends shift. Financial educators, along with fintech startups, halal stockpickers, and specialized exchange-traded funds (ETFs), are helping fill the gap. In addition, the rise of zero-fee brokerages has made investing more accessible to Muslims who follow strict financial guidelines. These low-cost platforms have made it easier to serve clients who were previously overlooked or considered unprofitable. Omar Shaikh, director of Islamic Finance Council UK, made the following comment about this:
“Islamic finance as a sector is barely 30 years old, with the past 15 years seeing the most development. It takes time to educate and create awareness and as this has happened, more banks have focused on servicing the demand for halal investing. This in turn helps to create more products, which then creates more demand.”
Halal investing is experiencing growth despite limited awareness. A 2023 report by the General Council for Islamic Banks and Financial Institutions revealed that the global Islamic funds market has expanded by over 300% in the past decade, with nearly $200 billion in assets now managed worldwide. A Goldman Sachs report from December 2022 projected that by 2075, five of the world’s ten largest economies—India, Indonesia, Nigeria, Pakistan, and Egypt—will have Muslim populations exceeding 850 million people.
As the Muslim population grows, so does the demand for financial products tailored to their needs. According to the State of the Global Islamic Economy Report 2023 by DinarStandard, approximately $25.9 billion was invested in Sharia-compliant investments during the 2022-23 financial year, reflecting a 128% increase from the previous year.
Our Methodology:
To compile this list, we chose the top 10 stocks from the S&P High Yield Dividend Aristocrats Shariah Index. These specific companies are known for consistently providing substantial dividends to their shareholders and demonstrating robust financial stability. We ranked these holdings based on the number of hedge funds that had invested in them by the end of Q3 2024, using data from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A wheat field at sunset, showing the company’s commitment to agricultural commodities.
Archer-Daniels-Midland Company (NYSE:ADM)
Number of Hedge Fund Holders: 34
Archer-Daniels-Midland Company (NYSE:ADM) is an American multinational food processing and commodities trading company. The company focuses on converting crops into a wide range of products, including food, animal feed, industrial materials, and energy. As a major participant in the global agricultural industry, it oversees an extensive network for sourcing, transporting, and processing various agricultural goods. Its activities involve managing complex supply chains while catering to the varied demands of the market.
In the past 12 months, Archer-Daniels-Midland Company (NYSE:ADM) has declined by over 2%. Moreover, the company also disappointed investors with its quarterly earnings results. In the third quarter of 2024, it reported $20 billion in revenue, marking an 8% decline from the same period last year and falling short of analysts’ expectations by $1.57 billion. Looking ahead, the company expects tougher market conditions in the coming year but is taking steps to improve performance and deliver value. Its focus remains on boosting productivity, enhancing operational efficiency, and maintaining a disciplined approach to capital allocation.
Despite these challenges, Archer-Daniels-Midland Company (NYSE:ADM) maintained strong cash flow generation. During the first nine months of the year, it recorded an operating cash flow of approximately $2.5 billion, up from $1.9 billion in the same period the previous year. It is one of the best halal stocks that pay dividends and the company holds a 51-year track record of consistent dividend growth. Currently, it pays a quarterly dividend of $0.50 per share and has a dividend yield of 3.96%, as of January 22.
As of the close of Q3 2023, 34 hedge funds in Insider Monkey’s database held stakes in Archer-Daniels-Midland Company (NYSE:ADM), down from 35 in the previous quarter. These stakes are worth $556.5 million in total. With over 2.2 million shares, AQR Capital Management was the company’s leading stakeholder in Q3.
Overall ADM ranks 9th on our list of the best halal stocks that pay dividends. While we acknowledge the potential for ADM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ADM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.