Stock Analysis

Are You An Income Investor? Don't Miss Out On John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS)

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NasdaqGS:JBSS
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Is John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if John B. Sanfilippo & Son is a new dividend aristocrat in the making. It sure looks interesting on these metrics - but there's always more to the story. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

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historic-dividend
NasdaqGS:JBSS Historic Dividend May 3rd 2021

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, John B. Sanfilippo & Son paid out 13% of its profit as dividends. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. John B. Sanfilippo & Son's cash payout ratio last year was 1.4%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's positive to see that John B. Sanfilippo & Son's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Consider getting our latest analysis on John B. Sanfilippo & Son's financial position here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. The first recorded dividend for John B. Sanfilippo & Son, in the last decade, was eight years ago. It's good to see that John B. Sanfilippo & Son has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we're concerned that what has been cut once, could be cut again. During the past eight-year period, the first annual payment was US$1.5 in 2013, compared to US$6.0 last year. Dividends per share have grown at approximately 19% per year over this time. John B. Sanfilippo & Son's dividend payments have fluctuated, so it hasn't grown 19% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

John B. Sanfilippo & Son has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, but it might be worth considering if the business has turned a corner.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. It's good to see John B. Sanfilippo & Son has been growing its earnings per share at 12% a year over the past five years. Earnings per share are growing at a solid clip, and the payout ratio is low. We think this is an ideal combination in a dividend stock.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, we like that the company's dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Overall we think John B. Sanfilippo & Son scores well on our analysis. It's not quite perfect, but we'd definitely be keen to take a closer look.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for John B. Sanfilippo & Son (1 is significant!) that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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What are the risks and opportunities for John B. Sanfilippo & Son?

John B. Sanfilippo & Son, Inc., through its subsidiary, JBSS Ventures, LLC, processes and distributes tree nuts and peanuts in the United States.

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Rewards

  • Price-To-Earnings ratio (17.4x) is below the Food industry average (18.3x)

  • Earnings grew by 4% over the past year

Risks

  • Significant insider selling over the past 3 months

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