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Dividend Aristocrats In Focus: Archer Daniels Midland

Updated on April 30th, 2024 by Bob Ciura

At Sure Dividend, we are big believers that the best stocks to buy and hold to generate long-term wealth have a number of qualities in common. First, they are strong businesses that lead their respective industries, with the ability to generate consistent profits year after year–even during recessions.

Not only that, they also have shareholder-friendly management teams that are dedicated to raising their dividends each year. This is why we advocate investing in the Dividend Aristocrats, a group of 68 companies in the S&P 500 Index, with at least 25 consecutive years of dividend increases.

You can download the full list of all 68 Dividend Aristocrats, along with several important financial metrics such as price-to-earnings ratios and dividend yields, by clicking on the link below:


Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.

Each year, we review all the Dividend Aristocrats. Next up is Archer Daniels Midland (ADM).

Archer Daniels Midland has increased its dividend each year for 51 years in a row and has paid uninterrupted quarterly dividends to shareholders for 90 years. The company’s dividend is also currently relatively safe, thanks to sound business fundamentals.

Business Overview

Archer Daniels Midland was founded in 1902 when George A. Archer and John W. Daniels began a linseed-crushing business. In 1923, Archer-Daniels Linseed Company acquired Midland Linseed Products Company, which created Archer Daniels Midland.

Today, it is an agricultural industry giant with annual revenue above $100 billion. The company produces a wide range of products and services designed to meet the growing demand for food due to rising populations.

Archer-Daniels-Midland’s businesses include processing cereal grains, oilseeds, and agricultural storage and transportation. The Ag Services and Oilseeds segment is Archer Daniels Midland’s largest.

Source: Investor Presentation

Archer-Daniels-Midland reported its fourth-quarter results for Fiscal Year (FY) 2023 on March 12th, 2024. For the full year, ADM reported a segment operating profit of $5.9 billion, alongside an adjusted segment operating profit of $6.2 billion, demonstrating a 6% decline compared to the prior year.

In the fourth quarter of 2023, ADM reported adjusted EPS at $1.36, representing a 16% decrease compared to the same period in the previous year. Lower pricing and execution margins, alongside improved manufacturing costs and lower equity earnings, influenced the quarter’s results.

For the full year, ADM’s adjusted EPS of $6.98 fell 6% compared to the prior year.

Growth Prospects

Growth was challenged for ADM last year, mostly the result of coming off a period of strong growth, creating difficult comparisons. Across its segments, ADM experienced varying performance levels in 2023.

The Ag Services & Oilseeds segment witnessed a decline in operating profit for both the fourth quarter and full year.

Carbohydrate Solutions exhibited mixed results, with a slight increase in the fourth quarter but a decline for the full year. The Nutrition segment showed a significant decrease in operating profit for both periods.

Over time, ADM has reshaped its portfolio with acquisitions, joint ventures, and strategic divestitures.

Source: Investor Presentation

For example, the acquisition of Ziegler Group and the establishment of a nutrition flavor research and customer center are expected to contribute to improved growth prospects.

This positive outlook leads us to anticipate a feasible growth rate of approximately 3.0% for the next five years.

Competitive Advantages & Recession Performance

Archer Daniels Midland has built significant competitive advantages over the years. It is the largest processor of corn in the world. This gives way to economies of scale and efficiencies in production and distribution.

It is an industry giant with ~440 crop procurement locations, ~300 food and feed processing facilities, and 64 innovation centers.

At its innovation centers, the company conducts research and development on responding more effectively to changes in customer demand and improving processing efficiency. Archer Daniels Midland’s unparalleled global transportation network serves as a huge competitive advantage.

The company’s global distribution system provides the company with high margins and barriers to entry. In turn, this allows Archer Daniels Midland to remain highly profitable, even during industry downturns.

Profits held up, even during the Great Recession. Earnings-per-share during the Great Recession are below:

Archer Daniels Midland’s earnings-per-share increased in 2008 and 2009, during the Great Recession. Very few companies can boast such a performance in one of the worst economic downturns in U.S. history.

The reason for Archer Daniels Midland’s remarkable durability in recessions could be that grains still need to be processed and transported, regardless of the economic climate.

There will always be a certain level of demand for Archer Daniels Midland’s products. From a dividend perspective, the payout looks quite safe.

Valuation & Expected Returns

Based on the expected 2024 EPS of $5.71, ADM shares trade for a price-to-earnings ratio of 10.2. ArcherDanielsMidland has been valued at a price-to-earnings multiple of ~15 over the last decade.

Our fair value P/E is 14, meaning the stock is undervalued.

An increasing valuation multiple could generate 6.5% annual returns for shareholders over the next five years. Future returns will also be derived from earnings growth and dividends.

We expect Archer Daniels Midland to grow its future earnings by ~3% per year through 2028, and the stock has a current dividend yield of 3.3%.

In this case, total expected returns are 12.8% per year over the next five years, a solid risk-adjusted rate of return for Archer Daniels Midland stock.

Final Thoughts

Archer Daniels Midland is coming off a few years of strong earnings growth. While earnings are expected to decline in 2024, we see the potential for a return to long-term growth.

The company has a long history of navigating through challenging periods. It has continued to generate profits and reward shareholders with rising dividends along the way.

The stock appears to be undervalued, and has a 3.3% dividend yield, plus annual dividend increases. As a result, Archer Daniels Midland appears to be a buy for dividend growth investors.

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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