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Deere's (NYSE:DE) Dividend Will Be Increased To US$1.13

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The board of Deere & Company (NYSE:DE) has announced that it will be increasing its dividend on the 8th of August to US$1.13. Despite this raise, the dividend yield of 1.2% is only a modest boost to shareholder returns.

Check out our latest analysis for Deere

Deere's Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Deere was paying a whopping 96% as a dividend, but this only made up 21% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to expand by 28.0%. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.

historic-dividend
historic-dividend

Deere Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the first annual payment was US$1.64, compared to the most recent full-year payment of US$4.20. This implies that the company grew its distributions at a yearly rate of about 9.9% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Deere has seen EPS rising for the last five years, at 28% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Deere's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Deere (1 is a bit concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.