Can Deere Sustain Its 5-Year Double-Digit Dividend Growth Streak?

Deere & Company DE has delivered impressive dividend growth in recent years, positioning itself as a strong income-generating stock within the manufacturing farm equipment industry. It offers a dividend yield of 1.24%, higher than the industry average of 1.10%. Deere has significantly ramped up shareholder returns since resuming dividend hikes after a pandemic induced pause in 2020. Its current payout ratio of 31% also outscores the industry’s 24.71%. 

Impressively, 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. This translates to a five-year dividend growth of 18.2%.

What makes Deere’s story even more compelling is its steady increase in return of capital through both dividends and share repurchases. In fiscal 2020, the company returned $4.76 billion to shareholders, or 36% of its cash flow from equipment operations. In fiscal 2024, the company returned $6.9 billion to its shareholders, or 81% of its cash flow from equipment operations. 

This is commendable, considering that Deere’s net sales started declining from 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-$5.50 billion, with the midpoint implying a 28% year-over-year decline. Cash flow from equipment operations is expected at $4.5-$5.5 billion for fiscal 2025, with capital expenditure budgeted at $1.4 billion. This will leave enough free cash flow to cover current dividend payments. With earnings expected to improve from next fiscal onwards, another hike can be expected from Deere. 

That said, Deere’s debt-to-capital ratio of 0.73 is among the highest in the industry. If it chooses to prioritize debt repayment or capital spending, the double-digit growth pace may decelerate.

How Does Deere Stack Up Against Peers?

Caterpillar Inc. CAT offers a dividend yield of 1.69%, which outpaces the manufacturing - construction and mining industry’s 1.58%. Caterpillar recently announced 7% hike in quarterly dividend to $1.51 per share, its 31st consecutive annual increase.

Over the past five years, Caterpillar’s dividend has grown at a rate of around 8%, supported by a near doubling of its free cash flow. Caterpillar has a payout ratio of 26.91% and a dividend/free cash flow ratio of 0.31. It has set a target to continue to return substantially all Machinery, Energy & Transportation (ME&T) free cash flow to shareholders over time through dividends and share repurchases.

AGCO Corporation AGCO, another player in the agriculture equipment industry, has a current dividend yield of 1.13%, higher than the industry’s 1.1%. With a payout ratio of 20.8%, AGCO’s dividend program appears more conservative. 

Similar to Deere, AGCO 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.

DE’s Price Performance, Valuation & Estimates

DE shares have gained 21.6% so far this year compared with the industry’s 20.9% growth. In comparison, the Zacks Industrial Products sector has dipped 0.6%. The S&P 500 has risen 0.8% in the same time frame.

Deere is currently trading at a forward 12-month price/earnings (P/E) ratio of 24.60X compared with the industry average of 23.27X. With a Value Score of D, DE stock does not appear to be a compelling value proposition at these levels.

The Zacks Consensus Estimate for DE’s fiscal 2025 earnings indicates a year-over-year decline of 26.5%. The consensus mark for revenues implies a drop of 15% for the year. The earnings estimate for fiscal 2026 indicates 17% growth, with revenues rising 7.3%.

The earnings estimate for Deere for 2025 has moved down 0.79% while the same for fiscal 2026 has moved up 3.52% over the past 60 days.

Deere stock currently carries a Zacks Rank #3 (Hold).

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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