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Why Scotts Miracle-Gro (SMG) is a Top Dividend Stock for Your Portfolio

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 when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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

Scotts Miracle-Gro (SMG) is headquartered in Marysville, and is in the Basic Materials sector. The stock has seen a price change of -12.5% since the start of the year. The lawn and garden products company is currently shelling out a dividend of $0.58 per share, with a dividend yield of 2.5%. This compares to the Fertilizers industry's yield of 0.7% and the S&P 500's yield of 2.51%.

Looking at dividend growth, the company's current annualized dividend of $2.32 is up 4% 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 5.44%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Scotts's current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.

SMG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $5.11 per share, representing a year-over-year earnings growth rate of 14.32%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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 is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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