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The J.M. Smucker Co. SJM is cheering investors by offering strong shareholder returns in forms of dividends and share repurchases. The leading marketer and manufacturer of consumer food and beverage products have been paying uninterrupted dividends since 1972. The company will now pay a quarterly cash dividend of 99 cents per share, reflecting 10% growth from the prior rate of 90 cents. This marks the 20th successive quarterly dividend hike. The increased dividend will be paid out on Sep 1 to shareholders of record as of Aug 13, 2021.
The latest dividend hike will bring its annualized dividend rate to $3.60 per share. Notably, the company has a five-year annualized dividend growth rate of 5.5%, reflecting dividend increases for five consecutive years. Based on the share price of $129.53 on Jul 8, the company’s current dividend payout ratio is 39.6%.
Dividend payouts are the biggest enticement for investors and The J.M. Smucker is committed to boosting shareholders’ wealth. Notably, it is a windows-and-orphan stock, with a long history of regular reliable dividends. In fiscal 2021, the company paid out dividends of $403.2 million to shareholders.
The latest hike also reflects its solid cash position, which is used to return value to shareholders (through higher dividends and regular buybacks) as well as reinvesting in the business. With an annual free cash flow return on investment of 10.2%, ahead of the industry’s 7.9%, the increased dividend is likely to be sustainable. The company recorded a free cash flow of $1,258.3 million in fiscal 2021, up 27.7% from the prior year.
The J.M. Smucker has been gaining from impressive net price realization as well as growth in the digital channel. In the fourth quarter of fiscal 2021, the company saw favorable net price realization to the tune of 1 percentage point, mostly driven by the U.S. Retail Consumer Foods and U.S. Retail Pet Food units. A revival in the Away From Home division along with continued sales growth in Smucker's Uncrustables brand also bodes well.
The company remains focused on its core strategy, including driving commercial excellence and simplifying cost structure, unleashing organization to win, and reshaping portfolio. As part of this, the company divested Natural Balance premium pet food business, Crisco oils and shortening business as well as U.S. canned milk and U.S. baking businesses. Its Ainsworth business has been aiding performance in the U.S. Retail Pet Foods category.
Smucker’s agreements with Keurig Green Mountain and Dunkin’ Brands Group, Inc. to manufacture and sell the K-Cup category of products have been yielding positive results. In the fourth quarter of fiscal 2021, sales of K-Cup jumped 14%, forming more than 30% of the U.S. Retail Coffee segment sales. The company’s U.S. Retail Coffee segment’s net sales increased $1.5 million to reach $583.1 million in the said quarter.
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We note that shares of this Zacks Rank #3 (Hold) company have advanced 13.7% year to date compared with the industry’s and Consumer Staples sector’s growth of 7.1% and 6.2%, respectively.
However, management expects the pandemic to continue impacting its results in fiscal 2022. For fiscal 2022, The J. M. Smucker expects a year-over-year net sales decline of 2-3%, including an adverse impact of $355.6 million associated with Crisco and Natural Balance divestitures. Softness in the at-home consumption trend is likely to persist.
The company foresees increased commodity, ingredient and packaging costs as well as input cost recovery timing to hurt its fiscal 2022 bottom line. Adjusted earnings per share for fiscal 2022 are anticipated to be $8.70-$9.10. The mid-point of the guided range suggests a 2% decline in the bottom line from the year-ago reported number. In the first quarter, it expects the metric to slump 20% year over year. For fiscal 2022, the gross profit margin is likely to be 37-37.5%, suggesting a year-over-year decline of 85 bps (at the mid-point).
Despite the continued COVID-19 woes, The J.M. Smucker’s impressive fundamentals and high-quality portfolio make it a favored stock. It draws further investor attention through its regular dividend payouts and commitment to enhance shareholder returns. Also, a long-term growth rate of 1.2% raises optimism in the stock.
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