The company is a member of the dividend achievers index, and has boosted distributions for 24 years in a row.
The company’s last dividend increase occurred last week, when the Board of Directors approved a 10% increase to 99 cents/share.
The company’s last dividend increase occurred last week, when the Board of Directors approved a 10% increase to 99 cents/share.
Over the past decade this dividend growth stock has delivered an annualized total return of 8.33% to its shareholders.
J.M. Smucker Company has managed to increase earnings from $4.05/share in 2011 to $7.79/share in 2021.
The annual dividend payment has increased by 8.70% per year over the past decade, which higher than the growth in EPS. This was achieved mainly through the expansion in the dividend payout ratio.
An 8.70% growth in distributions translates into the dividend payment doubling almost every eight years. If we look at historical data, going as far back as 1978 we see that J. M. Smucker has actually managed to double its dividend every seven years on average.
The dividend payout ratio has increased from 39.10% in 2007 to 46% in 2016. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
The EPS figures are not adjusted for amortization charges, which are related to intangible assets which are generated when acquisitions occur. These amortizations depress earnings per share artificially by $2.08/share in 2021, $2.07 in 2020, $2.11 in 2019 and $1.82 in 2018. The company is expected to generate adjusted earnings of $8.70 to $9.10/share in 2022. For comparison, adjusted earnings per share for 2021 were $9.12/share.
|
|
2021 |
2020 |
2019 |
2018 |
2017 |
2016 |
2015 |
|
Amortization/ share |
$2.08 |
$2.07 |
$2.11 |
$1.82 |
$1.79 |
$1.74 |
$1.06 |
Future increases in earnings would likely be generated by acquisitions and some by cost restructuring. The company has a track record of making acquisitions that work. The company has taken the initiative to improve operations and production efficiencies and improving its cost base. The demand for products in Smucker’s end markets is stable and would grow slowly over time.
The demand for coffee, peanut butter, jelly, and cooking oils is pretty stable, and results in repeatable sales to consumers, once you establish that relationship. However, the industry is fiercely competitive, which is why the company needs to constantly spend on marketing, and is also exposed to rising costs and potentially being unable to pass them onto consumers.
International sales account for less than a quarter of revenues, which is an opportunity for growth. Product innovation could also provide opportunities for growth.
One risk factor to look at is that sales to Wal-Mart account for over a quarter of revenues. This is a high reliance on the world’s largest retailer, which is known for its stance to keep costs low. On the other hand, this is a mutually beneficial relationship, as customers looking for a particular brand may be turned off a retailer if they do not find it.
The number of shares outstanding has been largely flat. While it went down between 2009 and 2015, a strategic acquisition increased the number of shares in 2016. They have repurchased only a negligible amount of stock back.
The annual dividend payment has increased by 8.70% per year over the past decade, which higher than the growth in EPS. This was achieved mainly through the expansion in the dividend payout ratio.
The dividend payout ratio has increased from 39.10% in 2007 to 46% in 2016. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, J. M. Smucker is attractively valued at 14.78 times forward earnings and yields 3%.
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