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Is It Smart To Buy The J. M. Smucker Company (NYSE:SJM) Before It Goes Ex-Dividend?

Simply Wall St

The J. M. Smucker Company (NYSE:SJM) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 13th of August will not receive the dividend, which will be paid on the 1st of September.

J. M. Smucker's next dividend payment will be US$0.90 per share, on the back of last year when the company paid a total of US$3.52 to shareholders. Calculating the last year's worth of payments shows that J. M. Smucker has a trailing yield of 3.2% on the current share price of $111.05. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether J. M. Smucker can afford its dividend, and if the dividend could grow.

Check out our latest analysis for J. M. Smucker

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. J. M. Smucker paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. 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. Thankfully its dividend payments took up just 40% 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see J. M. Smucker's earnings per share have risen 15% per annum over the last five years. J. M. Smucker is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, J. M. Smucker has lifted its dividend by approximately 9.9% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy J. M. Smucker for the upcoming dividend? J. M. Smucker's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about J. M. Smucker, and we would prioritise taking a closer look at it.

So while J. M. Smucker looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for J. M. Smucker you should know about.

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.

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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.