Can Deere Maintain Its Dividend Yield Edge Amid Industry Weakness?

Deere & Company DE has emerged as a standout in the Manufacturing - Farm Equipment industry, consistently delivering dividend yields above the industry average despite mounting challenges for both the company and the broader market. At present, Deere offers a dividend yield of 1.37%, topping the industry’s 1.20%. Since resuming dividend growth in 2020 following a pandemic-induced pause, the company has steadily reinforced its shareholder return strategy through regular payout increases and share repurchases. Its current payout ratio of 33.09% also compares favorably with the industry benchmark of 25.75%, underscoring its stronger commitment to rewarding investors.

Earlier this year, the company lifted its quarterly dividend by 10% to $1.62 per share, which was paid starting in the second quarter of fiscal 2025. Deere raised its dividend eight times in the past five years, including twice each in fiscal 2023 and fiscal 2024. The company has more than doubled the quarterly payout from 76 cents to $1.62 per share in this period. Deere has a five-year dividend growth rate of 18%.

Along with dividend payments, the company has also been active on the share repurchase front. In fiscal 2023, DE returned $8.6 billion to shareholders, representing 73% of its cash flow from equipment operations. This momentum continued in fiscal 2024, with $5.6 billion returned to shareholders (81% of cash flow from equipment operations) and $2.4 billion so far in fiscal 2025 (72% of its cash flow from equipment operations). Its dividend to total free cash flow ratio is 0.20.

This resilience is notable, considering that Deere has been seeing sales declines since the fourth quarter of fiscal 2023, with earnings growth turning negative since the first quarter of fiscal 2024 due to lower demand in its end markets. 

For fiscal 2025, DE expects net income at $4.75-$5.25 billion, with the midpoint implying a decline of around 30% year over year. Cash flow from equipment operations is expected at $4.5-$5.5 billion for fiscal 2025, with budgeted capital expenditure at around $1.4 billion. This will leave enough free cash flow to cover current dividend payments. With earnings expected to improve from next fiscal onward, another dividend hike seems likely.

However, the company’s relatively high debt-to-capital ratio of 0.73 could temper future growth if deleveraging or heavier investment takes priority.

A Quick Look at Peers’ Dividend Yield & History

AGCO Corporation AGCO has a current dividend yield of 1.05%, lower than the Manufacturing - Farm Equipment industry’s 1.20%. Its payout ratio of 26.30% is higher than the industry. 

AGCO had also paused dividend increases in 2020 due to the pandemic. It resumed growth with three hikes through 2023. However, in 2024, the company did not raise its regular dividend and issued a lower variable special dividend of $2.50 per share, down from $5 in 2023, $4.50 in 2022 and $4 in 2021. This pullback reflects the pressure from declining revenues and earnings that began in late 2023. AGCO has a dividend to free cash flow ratio of 0.13.

Meanwhile, Caterpillar Inc. CAT, which falls under the Manufacturing - Construction and Mining industry, currently offers a dividend yield of 1.43%, in line with the industry. Caterpillar announced a 7% hike in quarterly dividend to $1.51 per share in June this year, its 31st consecutive annual increase.

Over the past five years, Caterpillar’s dividend has grown at a rate of around 7.86%, supported by solid increase in free cash flow. Caterpillar has a payout ratio of 29% and a dividend/free cash flow ratio of 0.33. It has set a target to continue to return substantially all Machinery, Energy & Transportation free cash flow to shareholders over time through dividends and share repurchases.

DE’s Price Performance, Valuation & Estimates

DE shares have gained 11.7% so far this year compared with the industry’s 10.6% growth. In comparison, the Zacks Industrial Products sector has gained 6.8%. The S&P 500 has risen 10.8% in the same time frame.

Deere is currently trading at a forward 12-month price/earnings (P/E) ratio of 23.10X compared with the industry average of 21.27X.

The Zacks Consensus Estimate for DE’s fiscal 2025 earnings indicates a year-over-year decline of 27.5%. The consensus mark for revenues implies a drop of 14.5% for the year. The earnings estimate for fiscal 2026 indicates 12% growth, with revenues rising 6%.

Both the estimates for Deere for fiscal 2025 and fiscal 2026  have moved down over the past 60 days, as shown in the chart below.

Deere stock currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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