This short article on agriculture giant Monsanto (MON) appeared on www.TeaPartyEconomist.com. It reminded me why I hate Monsanto so much, but I never looked at Monsanto as a dividend stock. Let’s do that after the short article.
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4:46 AM
On Monsanto’s Payroll? U.S. Diplomates Push GM Seeds.
If you wanted to make the world dependent on your generically engineered seeds, what would you do? You would get a little help from your friends. We read: “. . . leaked documents now reveal that Monsanto has also deeply infiltrated the United States government. With leaked reports revealing how U.S. diplomats are actually working for Monsanto to push their agenda along with other key government officials, Monsanto’s grasp on international politics has never been clearer.”
Genetically Modified (GM) seeds are basic to the marketing plan.
Amazingly, the information reveals that the massive corporation is also intensely involved in the passing and regulations concerning the very GM ingredients they are responsible for. In fact, the information released by WikiLeaks reveals just how much power Monsanto has thanks to key positions within the United States government and elsewhere. Not only was it exposed that the U.S. is threatening nations who oppose Monsanto with military-style trade wars, but that many U.S. diplomats actually work directly for Monsanto.
According to leaked documents, “In 2007 it was requested that specific nations inside the European Union be punished for not supporting the expansion of Monsanto’s GMO crops. The request for such measures to be taken was made by Craig Stapleton, the United States ambassador to France and partner to George W. Bush.”
“Country team Paris recommends that we calibrate a target retaliation list that causes some pain across the EU since this is a collective responsibility, but that also focuses in part on the worst culprits. The list should be measured rather than vicious and must be sustainable over the long term, since we should not expect an early victory. Moving to retaliation will make clear that the current path has real costs to EU interests and could help strengthen European pro-biotech voices.”
Monsanto also got cooperation from the Food and Drug Administration. For more information, read the full story.
Then buy some non-hybrid seeds for your garden. Plant them next spring. That’s what I will be doing.
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Monsanto (MON)
Share price: $79.20
Shares: 535.41 million
Market capitalization: $42.47 billion
Bonds outstanding: $3.8 billion
What the company does - Originally a chemical company, Monsanto has morphed into an agricultural giant, focusing on seeds and crop protection products. In a major breakthrough, Monsanto introduced the first genetically modified crop seeds in 1996 and has remained the industry leader. The St. Louis-based company generated $10.5 billion in sales during fiscal 2010, and is focused on bringing new biotechnology traits to market to improve farmer yields and productivity.
Morningstar’s take - Monsanto is still bouncing back from a series of missteps and misfortune that have plagued the company (and its stock price) during the last couple of years. An overly aggressive pricing strategy for the firm's latest technology, SmartStax corn seeds and Roundup Ready 2 Yield soybeans, led to weak uptake, price cuts, and lower than anticipated profitability from the firm's increasingly important seeds and genomics business. Seeds are more important for Monsanto today because profits from the firm's other business, crop chemicals, have fallen off a cliff after glyphosate overcapacity forced Monsanto to basically cut Roundup prices in half and reset expectations. Adding to the company's drama, the federal government has started poking around Monsanto's business, looking for antitrust violations. While this list of bad news sounds daunting, we still believe Monsanto is the premier player in agricultural biotechnology. The company possesses a promising pipeline of seed products and with a few tweaks to its strategy (in our opinion, the firm needs to become more "farmer friendly"), we think Monsanto will right itself and continue generating shareholder value for years to come.
DIVIDEND RECORD – Monsanto is a consistent dividend grower, but it has a low payout and a low yield.
Dividend: $0.30 per quarter
Dividend yield: 1.51 ($1.20 annually / $79.20 share price)
Dividend payout ratio: 41% ($1.20 annual dividend / $2.92 average adjusted earnings)
EARNING POWER – Monsanto earns an average of $2.92 per share @ 535.41 million shares
(Earnings adjusted for changes in capitalization)
EPS | Net income | Shares | Adjusted EPS | |
2006 | $1.79 | $993 M | 555 M | $1.85 |
2007 | $3.62 | $2,024 M | 559 M | $3.78 |
2008 | $3.77 | $2,092 M | 556 M | $3.91 |
2009 | $1.99 | $1,096 M | 551 M | $2.05 |
2010 | $2.96 | $1,607 M | 542 M | $3.00 |
Average | $2.83 | $1,562 M | 535.41 M | $2.92 |
Five year average adjusted earnings per share is $2.92
Consider contrarian buying below $23.36 (8 times average adjusted EPS)
Consider value buying below $35.04 (12 times average adjusted EPS)
Consider speculative selling above $58.40 (20 times average adjusted EPS)
Monsanto is currently trading at 27 times average adjusted EPS. This is speculative pricing.
BALANCE SHEET – Stockholder equity is not growing much. The price to book value ratio is way too high for my likings.
Book value per share: $20.62
Price to book value ratio: 3.84 (under 1.0 is good)
Current ratio: 1.66 latest qtr (over 2.0 is good)
Quick ratio: 1.02 latest qtr (over 1.0 is good)
Debt to equity ratio: 0.14 (lower is better)
CONCLUSION – Monsanto is an evil corporation that is creating franken-foods. Their GM crops are spreading onto farms that don’t want them. That is a massive violation of property rights. Worse, Monsanto then sues the farmers for GM copyright infringement. That is vile. I would never buy this stock on moral principles. http://bestmeal.info/monsanto/company-history.shtml or type evil monsanto into google. You’ll be amazed what you’ll find.
The company has a measly dividend with a low payout ratio. On the plus side it is a dividend grower. It earns an average of $2.92 per share. This makes the current price of the stock speculative at 27 times average earnings. Never pay more than 20 times average adjusted earnings for a stock. Monsanto’s balance sheet is nothing special. Price to book value is too high at 3.84 times total equity. This company is not a good deal.
The best time to buy Monsanto in recent years was at the end of June 2010 when the stock was trading at around 14 times average earnings. Even then at the bottom the dividend yield would have been on 2.7% at today’s $0.30 quarterly dividend. I don’t think there is much chance of Monsanto becoming a high dividend stock unless its management started paying out 80% of average net income in dividends ($2.33 annual dividend) and the stock dropped in price down to 12 times average earnings. In that case Monsanto would yield 6.6% ($2.33 DIV / $35.04 share price), but that is not going to happen. Bye-bye Monsanto.
DISCLOSURE – I don’t own Monsanto (MON) and I never will.
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