Scotts Miracle-Gro (NYSE:SMG) Has Affirmed Its Dividend Of $0.66

The board of The Scotts Miracle-Gro Company (NYSE:SMG) has announced that it will pay a dividend on the 10th of March, with investors receiving $0.66 per share. The dividend yield will be 3.4% based on this payment which is still above the industry average.

See our latest analysis for Scotts Miracle-Gro

Scotts Miracle-Gro's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Even in the absence of profits, Scotts Miracle-Gro is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

The next year is set to see EPS grow by 159.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 57% by next year, which is in a pretty sustainable range.

Scotts Miracle-Gro Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from $1.20 total annually to $2.64. This means that it has been growing its distributions at 8.2% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Scotts Miracle-Gro's earnings per share has shrunk at 14% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Scotts Miracle-Gro's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Scotts Miracle-Gro is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Scotts Miracle-Gro you should be aware of, and 2 of them are concerning. If you are a dividend investor, you might also want to look at our curated list of high yield 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.