Scotts Miracle-Gro's (NYSE:SMG) Dividend Will Be $0.66

The Scotts Miracle-Gro Company's (NYSE:SMG) investors are due to receive a payment of $0.66 per share on 10th of March. This makes the dividend yield 4.4%, which will augment investor returns quite nicely.

View our latest analysis for Scotts Miracle-Gro

Scotts Miracle-Gro's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Even though Scotts Miracle-Gro is not generating a profit, it is still 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.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, so there isn't too much pressure on the dividend.

Scotts Miracle-Gro Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $1.20, compared to the most recent full-year payment of $2.64. This works out to be a compound annual growth rate (CAGR) of approximately 8.2% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Scotts Miracle-Gro May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Scotts Miracle-Gro's EPS has declined at around 2.5% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

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. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Scotts Miracle-Gro has 3 warning signs (and 2 which are potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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