Scotts Miracle-Gro (NYSE:SMG) Is Due To Pay 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 8th of March. This makes the dividend yield 4.6%, which will augment investor returns quite nicely.

Check out our latest analysis for Scotts Miracle-Gro

Scotts Miracle-Gro's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. While Scotts Miracle-Gro is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 30%, which makes us pretty comfortable with the sustainability of the dividend.

Scotts Miracle-Gro Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was $1.30, compared to the most recent full-year payment of $2.64. This implies that the company grew its distributions at a yearly rate of about 7.3% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Scotts Miracle-Gro's EPS has fallen by approximately 38% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into 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.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Scotts Miracle-Gro is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 4 warning signs for Scotts Miracle-Gro you should be aware of, and 1 of them shouldn't be ignored. Is Scotts Miracle-Gro not quite the opportunity you were looking for? Why not check out our selection of top 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.