Scotts Miracle-Gro (NYSE:SMG) Has Announced A Dividend Of $0.66

The Scotts Miracle-Gro Company's (NYSE:SMG) investors are due to receive a payment of $0.66 per share on 6th of December. This means the annual payment is 3.6% of the current stock price, which is above the average for the industry.

View our latest analysis for Scotts Miracle-Gro

Scotts Miracle-Gro's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Scotts Miracle-Gro's Could Struggle to Maintain Dividend Payments In The Future

Scotts Miracle-Gro's Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Scotts Miracle-Gro is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 448%, which is unsustainable.

Scotts Miracle-Gro Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.75 in 2014 to the most recent total annual payment of $2.64. This implies that the company grew its distributions at a yearly rate of about 4.2% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Earnings per share has been sinking by 52% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Scotts Miracle-Gro's payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Scotts Miracle-Gro you should be aware of, and 1 of them can't be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.