Case Study of a Stock with Increasing Dividend Payouts, Part 1 of 4


Archer Daniels Midland (symbol ADM) is a classic middleman company.  It buys crops from farmers, transports them, stores them and sells them to the food companies which make the prepared food we find at our grocery stores.  It is a boring, stable business.  The stock of Archer Daniels Midland has increased their yearly dividend payout an average of 10% per year for the last 12 years.  Let’s look at what an increasing, growing dividend payout can have for retirement income. 


In April I bought Archer Daniels Midland stock for many of your accounts.   The average price for clients was around $35.24 per share.  The stock currently pays a dividend of $1.20 per share per year.  This equates to a yearly yield of 3.4% per year.  If we forecast what happens if Archer Daniels Midland continues to increase its dividend at a rate of 10% per year for the next 12 years we get a dividend per share of $3.77 per year.  Based on the money invested this is a dividend yield of 10.7% per year!  For retirement income, a yearly10.7% yield is incredible!  Compare that to 5 year CD’s that pay 2.1% per year, compare to a 10 year US Treasury bond which yields 1.6% per year, even average Junk Bonds (high risk) only yield about 6% per year.  A low cost index fund or ETF representing the S&P 500 yields only 2% per year. 


Most of our retired clients need to withdraw 4% to 6% per year from their investments in order to provide monthly retirement income (Retirement Specialists Incorporated calls this, “paychecks in retirement”).  With large US stocks averaging a yield of 2% per year; this means we need to sell some of their core investments each year in order to fund their monthly withdrawals.  A portfolio with an average dividend yield of 10.7% per year would allow monthly paychecks in retirement to occur without selling any of the core investments. 


Key Point:  The yearly % yield of your retirement funds is more important than the overall size of your retirement funds.  


Next:  in Part 2 we look at what happens when we use the dividends to buy more shares for 12 years and then retire. 


Common sense disclaimer; there is no guarantee that Arched Daniels Midland or any other stock will be able to increase their dividend at 10% per year for the next 12 years.  This is a forecast based on past results.