Is Monsanto a Dividend Buy or a Poisonous Investment?

NEW YORK (TheStreet) -- Monsanto (MON) is best known for its famous (infamous, perhaps) Roundup weed-killing product. In addition to agricultural products, Monsanto also sells genetically modified seeds, the most popular of which are corn and soybeans. These days, the company is in the news because of its attempts to woo rival Syngenta. While farmers continue to buy the company's products, and we continue to eat the results, is this stock a good addition for your portfolio?

Monsanto was founded in 1901 and has grown to become one of the largest agricultural companies in the world. The company is a member of the exclusive Dividend Achievers Index -- which consists only of stocks with 10 or more consecutive years of dividend increases. Monsanto has paid increasing dividends each years since 2000.

Monsanto's 15 year history of dividend increases shows the company is committed to returning earnings to shareholders. Is the company a dividend buy, or is Monsanto drawing too much ire from its genetically modified crops? This article examines Monsanto for dividend investors.

Business Overview

Monsanto's business model revolves around helping farmers improve crop yields. The company accomplishes this by selling herbicides and pesticides like its flagship Roundup brand. 

The company sells a complete system to farmers consisting of Roundup herbicide and herbicide resistant genetically modified seeds. Monsanto operates in two primary segments: seeds and genomics, and agricultural productivity. The seeds and genomics segment generated 56% of revenue for the company in its most recent quarter. The agricultural productivity segment generated the remaining 44% of sales.

The seeds and genomics segment is the larger of the two segments. The segment is further divided into five divisions. Each division is shown below, along with the percentage of total revenue it generated for Monsanto in the company's most recent quarter:

  • Corn seed and traits: 32% of total sales
  • Soybean seed and traits: 14% of total sales
  • Cotton seed and traits: 3% of total sales
  • Vegetable seeds: 5% of total sales
  • All other crop seeds & traits: 2% of total sales

Do Genetically Modified Seeds Really Increase Crop Yields?

The ultimate purpose of Monsanto's business model is to increase crop yields. If the company's products do not increase crop yields for farmers, there is no point in buying the company's seeds and herbicides.

Some Web sites claim that genetically modified seeds do not increase yields. Other, more compelling evidence disagrees -- love them or hate them, genetically modified crops have higher yields.

Farmers want to best utilize their land. Like any other business owner, they are interested in realizing the most long-term profit possible. Monsanto has generated nearly $15 billion in sales in the last 12 months. One wonders why farmers would spend a collective $15 billion on products that are costly but do not increase yields?

The debate about GMO versus non-GMO crops is ongoing. On the one hand, more people can be fed with GMO crops for less money.  On the other hand, many people are uncomfortable eating genetically modified organisms.

The beauty of free markets is that consumers get to choose. Those who prefer non-GMO foods can eat them, while those looking to spend less on food can buy less expensive genetically modified foods. The success of both Wal-Mart (WMT) neighborhood markets and Whole Foods (WFM) show there's plenty of consumers around to support both GMO and non-GMO foods.

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