Over the past 10 years The J. M. Smucker Company (NYSE:SJM) has been paying dividends to shareholders. The stock currently pays out a dividend yield of 3.2%, and has a market cap of US$12b. Should it have a place in your portfolio? Let’s take a look at J. M. Smucker in more detail.
Want to help shape the future of investing tools and platforms? Take the survey and be part of one of the most advanced studies of stock market investors to date.
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does J. M. Smucker fit our criteria?
The current trailing twelve-month payout ratio for the stock is 28%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 40% which, assuming the share price stays the same, leads to a dividend yield of around 3.3%. However, EPS is forecasted to fall to $6.87 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of SJM it has increased its DPS from $1.28 to $3.4 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes SJM a true dividend rockstar.
Compared to its peers, J. M. Smucker produces a yield of 3.2%, which is high for Food stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank J. M. Smucker as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for SJM’s future growth? Take a look at our free research report of analyst consensus for SJM’s outlook.
- Valuation: What is SJM worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SJM is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.