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I’m all the time looking out for the very best investments, and I’ve a powerful desire for shares with quickly rising dividends. As a largely purchase and maintain investor, it offers me appreciable satisfaction to own investments that outperform the market and generate highly effective dividend development.
A properly worn shibboleth states that previous efficiency doesn’t assure future outcomes. I largely agree with that assertion. Nonetheless, there may be plentiful proof that shares that persistently outperform the S&P 500 over very long time frames, when taken as a bunch, proceed to outpace the indexes.
Add to that analysis displaying dividend growers beat the market, and you’ve got a recipe that always finds stable investments.
Each of those shares have greater than doubled the returns of the S&P 500 over 5 and ten yr durations, and these firms boast 5-year dividend development charges within the mid to excessive teenagers or higher.
Each companies reported Q2 2023 earnings early this month, and the outcomes are properly value perusing.
And regardless of an financial backdrop that many consider works in opposition to these two firms’, each carried out very properly this yr. Partly, that may be attributed to the considerably distinctive enterprise fashions employed by the 2 companies.
Federal Agricultural Mortgage Company (AGM)
AGM supplied Q2 outcomes in the course of the first week of this month. The corporate notched blockbuster outcomes with non-GAAP EPS of $3.86 trouncing analysts’ estimates by $0.63. Income of $84.55 million was up by 8.3% yr over yr, beating consensus by $5.27 million.
Some highlights for the quarter included: $0.6 billion of recent enterprise quantity within the type of servicing rights on a pool of loans serviced for others acquired in the course of the quarter.
Web curiosity earnings up 23% year-over-year to $78.7 million, internet efficient unfold additionally elevated 34% from the prior-year interval to a document $81.8 million, and internet earnings of $40.4 million, up by $5.3 million from the identical interval final yr.
Federal Agricultural Mortgage Company, also called Farmer Mac, is a federally chartered company that gives a secondary marketplace for loans made to debtors in rural America.
When evaluating Farmer Mac as a potential funding, it’s important to grasp that the agency’s federal constitution gives AGM with entry to capital at considerably decrease rates of interest. Moreover losses by farmers, that are AGM’s main shoppers, are mitigated by the federal authorities.
This largely explains why the corporate’s present 90-Day delinquency price throughout all traces of enterprise is barely 0.17%. In actual fact, all through Farmer Mac’s historical past, the corporate’s Agricultural Finance Mortgage Loans lifetime losses are solely 0.11%, and through the newest quarter, Farmer Mac reported zero cost offs.
The next chart gives an summary of AGM’s credit score losses over time.
AGM Earnings Presentation
These low loss charges translate into a lot better charge-off charges than these recorded by banks.
As a result of Farmer Mac workouts very tight lending requirements, the agency has by no means suffered delinquency or credit score loss from its AgVantage securities, USDA Assured Mortgage Applications, or its Rural Utilities program.
AGM Earnings Presentation
From 2000 by way of the top of 2022, AGM’s enterprise quantity elevated at a CAGR of 10%. With almost $300 million in income within the first two quarters of this yr, Farmer Mac has already exceeded the document $275.4 income recorded in 2022.
From FY 2020 by way of final quarter, the corporate’s internet efficient unfold has elevated from 0.93% to 1.17%, core ROE has grown from 16% to 19%, and the inventory’s ebook worth per share is up from $60.41 to $82.71.
With a complete mortgage portfolio of $26.7 billion, 68% is devoted to farm and ranch, 25% to rural utilities, 6% to company finance, and 1% to renewable power.
As soon as once more, it is very important perceive that the corporate’s threat profile is buttressed by the federal authorities’s assist of farmers. This serves to cut back the chance associated to Farmer Mac’s mortgage portfolio.
Supply: Agriculture Equity Alliance
It’s cheap to imagine that AGM can proceed to develop at a marked tempo. The U.S. agriculture mortgage market stands at $349 billion, and Ag productiveness should double to satisfy the forecast for world demand
Moreover, Farmer Mac is concentrating on the markets for rural infrastructure and renewable power as beforehand untapped sources of development. Renewable electrical energy capability alone is predicted to develop at a 48% price over the subsequent half decade.
AGM can be growing the agency’s presence within the timber business.
As an investor that focuses on dividends, there’s a good motive that Farmer Mac earned a place in my portfolio. With a present yield of two.62%, the inventory sports activities a 5-year dividend development price of almost 17% and has a payout ratio that may be a hair above 30%.
UFP Industries, Inc. (UFPI)
UFPI supplied Q2 earnings early this month. The corporate reported a double miss with GAAP EPS of $2.36 lacking by $0.03 and income of $2.04 billion, down almost 30% yr over yr, falling in need of consensus by $250 million.
Nonetheless, the somewhat massive miss in income could be attributed to falling lumber costs. These decrease prices had been handed alongside to prospects, so the whole impact was minimal. The corporate did document an 8% lower in natural gross sales.
Adjusted EBITDA margin improved by 50 foundation factors to 11.5%. UFPI additionally reported money move from operations of $321 million, a $231 million enchancment over final yr.
The corporate now has a internet money surplus of $425 million this yr, in comparison with internet debt of $191 million final yr.
UFPI is a significant producer of wooden and wood-alternative merchandise for the development, industrial, retail, and worldwide markets
The agency operates in three segments: In 2022, Retail Options generated $3.7 billion in gross sales, Building $3.1 billion, and Packaging $2.4 billion in income.
Producing about 40% of revenues, the Retail Options section serves the restore and rework markets.
In Q2 of 23, the section’s internet gross sales of $920 million dropped 18% in comparison with the comparable quarter of 2022. This was because of an 18% decline in costs within the lumber market. Gross revenue of $121 million elevated 65% in comparison with the second quarter of 2022 and the gross revenue margin jumped to 13.2% from 6.5%.
This section gives pressure-treated and fire-retardant lumber merchandise and wooden plastic composites that embody decking, railing techniques, balusters, fencing, lattice, picnic tables and landscaping merchandise.
Main product traces embody outside residing manufacturers, ProWood strain handled lumber, and Deckorators decking and railing.
The UFP Building section is the main provider to factory-built housing and single and multi-family builders. UFPI estimates it produces 45% of the roof trusses utilized in factory-built housing in the US.
The section additionally produces ground techniques together with engineered wooden and non-wood elements, reduce and formed lumbers, wall panels, I-joists, plywood, and oriented strand boards.
That is along with the distribution {of electrical}, and plumbing merchandise. The Building section additionally gives concrete forming providers and industrial enterprise models for the infrastructure and non-residential development markets.
Building reported Q2 internet gross sales of $550 million, down 44% from the comparable quarter. The drop in gross sales was attributed to a 26% lower in promoting costs together with an 18% % lower in natural unit gross sales.
Gross revenue was additionally down 40% to $137.2 million. This was brought on by normalizing market pricing together with a lower in quantity related to a decline in housing begins and business manufacturing of manufactured properties.
The section’s gross revenue margin improved to 25% from 23% in 2022.
By way of the Packaging section, UFPI is the chief in industrial wooden and packaging options. This section gives pallets, strapping, foam, labels, corrugates, and movies.
In Q2, internet gross sales for Packaging of $488 million had been down 28% yr over yr. This was the results of a 21% lower in promoting costs and a 9% decline in natural unit gross sales.
Gross sales from acquisitions had been up 2%. Gross revenue of $118.2 million dropped by 27%, because of normalizing market pricing and a decline in quantity in keeping with market situations.
Since 2019, worth added merchandise have constituted about two-thirds of UFPI’s complete income.
As a result of lumber is a key part for most of the agency’s product traces, fluctuations in lumber costs have an effect on UFPI’s value-added and fixed-price product traces work in opposing methods. This ends in an inside hedge. Administration touts how this gives UFPI a way to restrict value swings within the purchase and promote sides of the enterprise.
I’m attracted by UFPI’s almost distinctive firm tradition. The corporate now not requires an undergraduate diploma for promotion into administration positions. As of 2016, the agency has operated its personal enterprise faculty. Absolutely funded by UFPI, the UFP Enterprise Faculty is 2 years lengthy and consists of 30 enterprise programs.
Moreover, each supervisor is required to personal inventory in UFPI, and each plant is a revenue middle. Staff obtain bonuses based mostly on the return on invested capital, which aligns worker pursuits with firm pursuits.
UFPI additionally employs a disciplined acquisition program. The agency has a historical past of buying quite a few, small, bolt-on acquisitions. In flip, this serves to drive development and increase the corporate’s product portfolio and footprint.
UFPI Investor Relations
UFPI simply elevated the quarterly dividend to $0.30 a share, a 20% improve within the quarterly price. The board authorised a brand new share buyback program authorizing the repurchase of as much as $200 million value of shares till the top of July 2024. That is equal to about 3.2% of the present market cap.
UFPI’s dividend yields 1.19%, the payout ratio is about 11%, and the 5-year dividend development price is 25.59%.
AGM And UFPI: Purchase, Promote, Or Maintain?
I contemplate each firms to be very stable long run investments.
If AGM was a financial institution, its mortgage losses could be thought-about phenomenal. Partly, it is because the corporate advantages from federal applications that serve to mitigate losses by farmers. Moreover, AGM’s federal constitution gives entry to capital at considerably decrease rates of interest.
People gotta eat, and inhabitants development means there may be an ever growing demand for Ag merchandise. This gives a somewhat clear long run development runway for AGM.
I view UFPI as having an distinctive management crew. Whereas development exercise may wane over the quick time period, a scarcity of housing, mixed with growing older housing inventory and rising rents, ought to present long run demand for the corporate’s merchandise.
I price AGM as a stable Maintain. A low double digit drop within the share valuation would probably lead me so as to add shares.
I price UFPI on the weaker finish of a Purchase.
I’ve a place in each firms that I initiated over the previous couple of weeks.