Don't Race Out To Buy The J. M. Smucker Company (NYSE:SJM) Just Because It's Going Ex-Dividend

The J. M. Smucker Company (NYSE:SJM) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Therefore, if you purchase J. M. Smucker's shares on or after the 16th of May, you won't be eligible to receive the dividend, when it is paid on the 2nd of June.

The company's upcoming dividend is US$1.08 a share, following on from the last 12 months, when the company distributed a total of US$4.32 per share to shareholders. Calculating the last year's worth of payments shows that J. M. Smucker has a trailing yield of 3.9% on the current share price of US$111.54. If you buy this business for its dividend, you should have an idea of whether J. M. Smucker's dividend is reliable and sustainable. As a result, readers should always check whether J. M. Smucker has been able to grow its dividends, or if the dividend might be cut.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. J. M. Smucker reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If J. M. Smucker didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out more than half (56%) of its free cash flow in the past year, which is within an average range for most companies.

See our latest analysis for J. M. Smucker

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. J. M. Smucker was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, J. M. Smucker has lifted its dividend by approximately 5.4% a year on average.

We update our analysis on J. M. Smucker every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Has J. M. Smucker got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think J. M. Smucker is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in J. M. Smucker and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 3 warning signs for J. M. Smucker (1 is potentially serious!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.