Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that The J. M. Smucker Company (NYSE:SJM) is about to go ex-dividend in just 3 days. This means that investors who purchase shares on or after the 13th of February will not receive the dividend, which will be paid on the 2nd of March.
J. M. Smucker's next dividend payment will be US$0.88 per share, and in the last 12 months, the company paid a total of US$3.52 per share. Last year's total dividend payments show that J. M. Smucker has a trailing yield of 3.3% on the current share price of $108.23. If you buy this business for its dividend, you should have an idea of whether J. M. Smucker's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. J. M. Smucker is paying out an acceptable 71% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 47% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that J. M. Smucker's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that J. M. Smucker's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past ten years, J. M. Smucker has increased its dividend at approximately 9.7% a year on average.
Should investors buy J. M. Smucker for the upcoming dividend? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, J. M. Smucker doesn't stand out from a dividend perspective. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Wondering what the future holds for J. M. Smucker? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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