I like the long-term story here. As I mentioned at the outset, I

Well, I promised you all that while I quit my full-time job to focus on writing, I didn’t quit my pursuit of financial independence. And to that end, I have remained loan calculator committed to investing in high-quality companies that regularly and reliably pay and raise dividends. Of course, my capital is more constrained than before, but I’m doing my best.
This most recent equity purchase was really interesting for me. I’ve honestly had mixed feelings on this company in the past, but I could no longer ignore the low valuation, attractive loan calculator entry yield, and strong dividend growth over the last decade.
Another interesting consideration is that this position was initiated just days after my initial investment with Visa Inc. (V) . So it’ll be fun to see how a value play compares to a growth play over the next decade or so in terms of both business performance and stock performance. However, I feel that both offer an attractive valuation based on potential growth prospects, although the value and growth mix for these two companies are on different sides of the spectrum.
Another interesting fact is that my newest investment is another Warren Buffett holding through the Berkshire Hathaway Inc. (BRK.B) investment portfolio, just like Visa. I guess I’m creating loan calculator my own mini Berkshire!
Deere has had a great run over the last few years as the broader economy picked up and demand for their machinery loan calculator grew. They set record after record loan calculator for earnings as they rode this wave. However, future earnings growth for the next few years looks bleak as Deere operates in a highly cyclical industry.
Revenue has climbed from $19.986 billion in fiscal year 2004 to $37.795 billion in FY 2013. That’s a compound annual growth rate of 7.34% , which is pretty strong. Growth in revenue over the last few years has been especially impressive. Even though DE is a cyclical stock, loan calculator the revenue growth was fairly secular other than the 2009-2010 period which happened to coincide with the Great Recession.
Earnings per share grew from $2.78 to $9.09 during this same time period, which is a CAGR of 14.07% . EPS has likewise grown rather steadily other than the two aforementioned years. DE’s loan calculator financial performance over the last decade has been really strong.
However, S&P Capital loan calculator IQ predicts loan calculator EPS to grow at a compounded rate of 2% annually over the next three years. This is generally in line with company guidance. Deere is forecasting a 4% decline in equipment sales for FY 2014, and sales in the Agriculture & Turf segment (Deere’s largest) fell 12% for the second loan calculator quarter of FY ’14. Furthermore, they’re guiding for just $3.3 billion in net income for FY 2014, compared to $3.537 loan calculator billion for FY 2013. So we’ll likely see lower earnings for the next couple of years before perhaps seeing a rise again in FY 2016.
Dividend growth has been pretty loan calculator fantastic over the last decade. The company has raised its quarterly per share dividend for 11 consecutive years , with a 10-year dividend growth rate of 16.3% . This kind of aggressive growth is really attractive to me, and the most recent dividend raise of 17.6% back in May provided me the confidence to go ahead and start really taking a good look at this company. And I expect dividend loan calculator growth to continue even with the strong possibility of falling loan calculator earnings for the next couple years, as the payout ratio stands at just 26.3% . So earnings could halve and the dividend would still be covered loan calculator perfectly fine. And the yield, at 2.72% , is pretty attractive in this market.
And the dividend growth should also continue to benefit loan calculator from aggressive share buybacks. The company has reduced the share count from 506.2 million in 2004 to 389.2 million at the end of FY 2013. Furthermore, the company authorized an $8 billion buyback program last year, which should counteract some of the effects of falling demand in their products during the next cycle.
The balance sheet is solid, though loan calculator it looks worse than it really is. The long-term debt/equity ratio is 2.1 , which appears high. However, as noted above Deere has a large finance operation loan calculator in order to provide flexible purchasing options to customers, and maintains a large receivables account. The interest coverage ratio is 8.4, so the company can comfortably cover interest expenses. Furthermore, Deere’s long-term debt has an A rating from Standard & Poors.
Profitability metrics look pretty sound. Net margin has averaged 7.51% over the last five years. Return on equity has averaged 35.61% over the same time frame. These numbers look solid, and compare really well with competitors like Caterpillar Inc. (CAT) . Qualitative Aspects
I like the long-term story here. As I mentioned at the outset, I’ve been mixed on investing loan calculator in a company like Deere because I prefer investing in companies with better earnings visibility and more secular growth patterns. loan calculator DE, meanw