Balanced capital allocation framework
In 2016, Archer Daniels Midland’s (ADM) priority is its balanced capital allocation framework. It started this initiative by selling a 50% interest in its Brazilian port in 2015. To improve the long-term returns in a more challenged operating environment, the company plans to reduce the asset intensity in several of its businesses. For 2016, Archer Daniels Midland budgeted capital expenditure of around $1 billion. In 1Q16, the capital expenditure was around $0.2 billion. It set a preliminary target to reduce the invested capital for its businesses by at least $1 billion over time.
Archer Daniels Midland’s priority also includes growing its geographic footprint and expanding its specialty ingredients business. It’s looking for opportunistic acquisitions around the world including bolt-ons. Expenses related to mergers and acquisitions were $0.1 billion in 1Q16.
Returning capital to shareholders
In light of returning capital to shareholders and the importance of dividends to investors, Archer Daniels Midland’s board announced a 7% increase in its quarterly dividend to $0.30 per share in 2016. During the quarter, the company spent about $0.3 billion to repurchase ~9 million shares. It paid about $0.5 billion in dividends as part of this strategy. Management thinks that shares are an attractive investment at the current levels. As a result, management plans to repurchase $1 billion–$1.5 billion in shares in 2016. This is subject to strategic merger and acquisition opportunities.
Recent dividend declared
On May 5, Archer Daniels Midland declared a cash dividend of $0.30 per share on the company’s common stock. This will be paid on June 8, 2016, to shareholders of record May 18, 2016. This dividend marks Archer Daniels Midland’s 338th consecutive quarterly payment.
Currently, Archer Daniels Midland has a dividend yield of 2.9% as of May 6. Management has been increasing the dividend at an average annual rate of 14.4% over the past five years.
Archer Daniels Midland’s peers in the industry include McCormick & Company (MKC), Flowers Foods (FLO), and WhiteWave Foods (WWAV). McCormick has returned 11.6% YTD (year-to-date). WhiteWave Foods has returned 5.3% YTD. However, Flowers Food has fallen 10.1% YTD. The Consumer Staples Select Sector SPDR Fund (XLP) and the PowerShares S&P 500 Low Volatility Portfolio (SPLV) invest 0.71% and 1.1% of their portfolios in McCormick & Company.