Monsanto to Pay Higher Dividend - Analyst Blog

Monsanto (MON) approved an increase in the quarterly dividend payment from 26.5 cents per share to 28 cents. The primary motive behind this is to enhance shareholder sentiments.

Monsanto also recently authorized a three-year share repurchase program of $1 billion. The increase in the production of SmartStax corn seeds is also expected to have a positive impact on top-line and bottom-line results. Monsanto is expected to experience a higher profit margin based on economies of scale.

Monsanto has been continuously increasing production and focusing on innovation and upgrading of technology to make farmers more productive. The company’s robust pipeline of new products appears encouraging.

Following second quarter results, Monsanto introduced a new product called Warrant Herbicide. It is an encapsulated formulation of acetochlor designed for cotton and soybean. The new product was tested by farmers as MON 63410 Herbicide and has been proved successful. Warrant Herbicide helps prevent pigweed on cotton. Its effectiveness lasts for more than a month.

Monsanto’s capabilities in biotechnology and breeding research are generating a rich product pipeline, which is expected to drive long-term growth.

We like the company’s market leadership and are optimistic about its near-to-mid-term performance. However, an intensely competitive environment and Monsanto’s huge dependence on a few large customers are discouraging. Monsanto also faces foreign currency risk since a significant portion of its income comes from outside the U.S. Slower market recovery is another problem.

For the fourth quarter and fiscal 2010, management expects EPS in the range of $(0.09)-$0.11 and $2.40-$2.60, respectively, representing a decrease from fiscal 2009. However, over the longer-term we expect a considerable improvement in earnings based on higher production. Thus, we reiterate our Neutral rating together with a Zacks #3 Rank ('hold').