It looks like The Scotts Miracle-Gro Company (NYSE:SMG) is about to go ex-dividend in the next 2 days. If you purchase the stock on or after the 25th of November, you won't be eligible to receive this dividend, when it is paid on the 10th of December.
Scotts Miracle-Gro's next dividend payment will be US$0.58 per share, and in the last 12 months, the company paid a total of US$2.32 per share. Calculating the last year's worth of payments shows that Scotts Miracle-Gro has a trailing yield of 2.2% on the current share price of $104.06. If you buy this business for its dividend, you should have an idea of whether Scotts Miracle-Gro'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. Fortunately Scotts Miracle-Gro's payout ratio is modest, at just 28% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Scotts Miracle-Gro'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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Scotts Miracle-Gro has grown its earnings rapidly, up 27% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Scotts Miracle-Gro has lifted its dividend by approximately 17% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Scotts Miracle-Gro an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, Scotts Miracle-Gro paid out less than half its earnings and a bit over half its free cash flow. Scotts Miracle-Gro looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Scotts Miracle-Gro? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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