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Sunday, January 30, 2011

9 Ways to Play the Agricultural Boom AGU / BG / BHP / CNH / DE / MON / MOS / POT / SANW / SQM

We all remember last year’s BHP Billiton (BHP) and Potash Corp (POT) drama. BHP’s takeover offer was $130/share. Potash rejected it on the grounds that they are worth more. After that, Potash’s stock price jumped to $150. Finally, the Canadian government blocked the bid after Potash pleaded.
The point of this little flashback was that usually when a company rejects a takeover bid, the stock falls. Potash’s stock only modestly fell and then rose back to $150/share. The reason was that POT was worth more than its $130 target and its $2 billion buyback plan. Since this takeover, POT and its competitors soared, sending Potash Corp up 69%, Mosaic (MOS) up 72% and Agrium (AGU) up 66% (since 7/1/10), while the S&P 500 is only up 18% in that same time.

These companies have a resource that is in high demand right now: fertilizer. Agricultural commodities are booming right now, farmers need fertilizer to grow the crops. Potash Corp alone holds 20% of the world’s potash supply, giving it “large, low-cost, long-life, expandable, export-oriented, tier 1 assets” as BHP said.

However, there is another side to agriculture boom that you can profit from: equipment, seeds and pesticides.

Farming equipment maker, Deere (DE) outpaces the rest of its industry with a recently increased dividend, low P/E of 20, ROE of 33%, P/S 1.4, PEG 1.68. The company is a very good buy compared to its competitors. Deere is my choice for a farm equipment maker.

Seeds and pesticides: Monsanto (MON), Bunge Limited (BG), S&W Seed Co. (SANW). Monsanto is a larger cap play, Bunge and SANW are smaller cap play. Bunge and S&W are the growth stories in this industry and I would recommend them strongly.

Here is the recap:

Fertilizer: Potash Corp (POT), Mosaic (MOS), Agrium (AGU), SOCIEDAD QUIMICA MINERA DE C (SQM)

Equipment: Deere (DE), if you want something a little more speculative go with CNH Global (CNH)
Seeds and Pesticides: Monsanto (MON), Bunge Lim (BG), S&W Seed Co (SANW)

There are plenty more gains in the agriculture industry, and I have shown you some thriving areas and some decent plays to thrive on. It is important to do your own research to make sure the risk fits your own requirements. Some of the plays above are more speculative than others. Agriculture can be volatile at times, so it is important that you keep an eye out on earnings reports, agricultural prices, crop reports, etc.

Disclosure: I am long DE.

Eaton Corp Q4 Profit Beats View; Boosts Dividend; Announces 2-for-1 Split (ETN)

Diversified power management specialist Eaton Corporation (ETN) on Thursday posted better-than-expected fourth quarter earnings, raised its dividend payout by 17%, and announced a two-for-one stock split.

The Cleveland-based company reported fourth quarter net income of $280 million, or $1.63 per share, compared with $211 million, or $1.25 per share, in the year-ago period. Excluding items, adjusted profit was $1.69 per share.

Revenue rose 17% from last year to $3.66 billion.

On average, Wall Street analysts expected a smaller profit of $1.67 per share, on lower revenue of $3.63 billion. Looking ahead, the company said it expects full-year 2011 profit to range from $7.00 to $7.60 per share, while analysts currently expect $7.26 for the year.

Separately, the company boosted its quarterly dividend payout by 17%. The new dividend of 68 cents per share (up from 58 cents) will be paid on Feb. 25 to shareholders of record as of Feb. 7. Eaton also announced a two-for-one stock split, which will take place on Feb. 28 for shareholders of record as of Feb. 7. Eaton Corp shares rose 55 cents, or +0.5%, in premarket trading Thursday.

The Bottom Line

We have been recommending shares of Eaton Corp (ETN) since Nov.24, 2010, when the stock was trading at $95.81. The company will now have a 2.60% dividend yield, based on the higher dividend payout and last night’s closing stock price of $104.61.

Disclosure I am long ETN shares.

JM Smucker Lifts Quarterly Dividend 10%

J.M. Smucker Co. (SJM) boosted its dividend by 10% and added five million shares to its stock-buyback authorization as the food maker looks to disburse excess cash for shareholders' benefit.
The company, which makes jams, jellies and Jif peanut butter as well as Pillsbury products, raised its quarterly dividend to 44 cents from 40 cents, payable March 1 to shareholders of record on Feb. 11.

It also boosted its buyback authorization by five million shares. The company didn't say in a statement how many shares were left on its authorization, but it did note that it had repurchased about 3.7 million shares outstanding during the current fiscal quarter. The company has roughly 120 million shares outstanding.

Many companies have boosted their dividends or announced stock buybacks as the need to hoard cash has waned amid economic improvement.

"These actions indicate the confidence we have in our business and the strong cash flows it generates," said Co-Chief Executive Tim Smucker.

In November, Smucker said its fiscal second-quarter profit climbed 6.9%, helped by higher margins, as revenue was flat.

Disclosure I am Long SJM shares.

7 Companies Increasing Dividends Last Week

It was another big week for income-oriented dividend stock investors, as a bevy of high-profile corporate names upped their payouts. Dividend stocks raising their yields include Intel (NASDAQ: INTC), Time Warner Cable Inc. (NYSE: TWC), Potash Corp. of Saskatchewan (NYSE: POT), Norfolk Southern Corp. (NYSE: NSC), Praxair Inc. (NYSE: PX), Parker Hannifin Corp. (NYSE: PH) and Limited Brands (NYSE: LTD).

Perhaps the biggest name on the list of dividend winners last week was semiconductor marker Intel (NASDAQ: INTC).  The chipmaker and tech bellwether boosted its dividend payments by the largest amount in five years while also adding $10 billion to its stock buy-back plans. The company raised its quarterly dividend to 18.12 cents per share, a 15% increase from the previous quarter. The additional $10 billion for share repurchases brings the overall buyback authorization to $14.2 billion. Intel said the dividend is payable March 1 to shareholders of record as of Feb. 7.

In addition to the big tech sector dividend bump, we also saw a spike in dividends from the entertainment sector. Cable TV provider Time Warner Cable Inc. (NYSE: TWC) raised its dividend last week, declaring a quarterly payout of 48 cents per share. That figure represents a 20% increase over its prior dividend. News of the dividend boost came as Time Warner Cable reported better-than-expected fourth-quarter earnings. The new payout from the second-largest U.S. cable-television operator will be handed out on March 15 to shareholders of record on Feb. 26.

Agriculture stars also shined this week, as fertilizer and feed products provider Potash Corp. of Saskatchewan (NYSE: POT) announced that its board of directors had approved a three-for-one stock split of its outstanding common shares. Under the terms of the deal, shareholders will receive two additional shares for each share owned as of Feb. 16. Now, in addition to the split, Potash made the deal even more interesting by increasing their quarterly cash dividend to 21 cents a share from 10 cents a share on a pre-split basis. The company also declared a quarterly cash dividend of 7 cents per common share on a post-split basis, which is payable May 5 to shareholders of record on April 14.
The transportation sector also saw representation in the array of companies raising dividends last week.

Railroad operator Norfolk Southern Corp. (NYSE: NSC) upped its quarterly dividend 11% to 40 cents a share from 36 a share. The dividend increase was the second since the transportation giant boosted its payout by 2 cents a share in July. This year’s dividend increase is nearly double the 6% dividend increase from Norfolk Southern in 2010. The increased dividend will be payable on March 10 to shareholders of record as of Feb. 4. One day after declaring the increased dividend, Norfolk Southern Corp. said its fourth quarter profit rose 31%. The strong performance of late in the railroad industry, including Norfolk Southern competitors CSX Corp. (NYSE: CSX) and Union Pacific Corp. (NYSE: UNP), bodes well for this traditionally strong dividend-paying sector.

Industrial gases firm Praxair Inc. (NYSE: PX) raised its dividend by 11% despite reporting fourth-quarter profit that fell 61% on tax charges. Charges aside, however, the company actually saw better-than-expected revenue from cost-cutting and growing sales in emerging markets. The global giant’s new dividend will be 50 cents per share, and it will be payable March 15 to shareholders of record as of March 7. Dividend increases are all too common for Praxair. The most recent bump is its 18th consecutive annual dividend increase.

Another global industrial powerhouse spreading the wealth to shareholders is Parker Hannifin Corp. (NYSE: PH). The company increased its quarterly cash dividend to 32 cents per share, payable on March 4 to shareholders of record as of Feb. 10. The new dividend represents a 10% increase over the previous quarterly dividend of 29 cents per common share. Although Parker Hannifin’s profit margins in the most recent quarter fell, the company — seen as a barometer for the entire global industrial segment — still managed to dish out the cash to investors.

Fashion retailer Limited Brands (NYSE: LTD) proved it can combine the concepts “sexy” and “dividends” with its latest announcement.  The company, which operates intimate apparel specialty store Victoria’s Secret as well as the Bath & Body Works and La Senza retail chains, said it was increasing its annual dividend by 20 cents to 80 cents per share. The first quarterly payment at the new rate will take place on March 11 to shareholders of record on Feb. 25. Now income investors can slip into something a little more comfortable that includes a sweet quarterly cash bonus.

Disclosure I am long  UNP, NSC, and INTC.