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Scotts Miracle-Gro (SMG) is a Top Dividend Stock Right Now: Should You Buy?

Zacks Equity Research

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Scotts Miracle-Gro in Focus

Headquartered in Marysville, Scotts Miracle-Gro (SMG) is a Basic Materials stock that has seen a price change of 57.47% so far this year. Currently paying a dividend of $0.55 per share, the company has a dividend yield of 2.27%. In comparison, the Fertilizers industry's yield is 1.01%, while the S&P 500's yield is 1.93%.

Looking at dividend growth, the company's current annualized dividend of $2.20 is up 2.8% from last year. Scotts Miracle-Gro has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.28%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Scotts's payout ratio is 53%, which means it paid out 53% of its trailing 12-month EPS as dividend.

SMG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.33 per share, representing a year-over-year earnings growth rate of 16.71%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that SMG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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