All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Smucker in Focus
Smucker (SJM) is headquartered in Orrville, and is in the Consumer Staples sector. The stock has seen a price change of 26.37% since the start of the year. The food maker is paying out a dividend of $0.85 per share at the moment, with a dividend yield of 2.88% compared to the Food - Miscellaneous industry's yield of 0.11% and the S&P 500's yield of 1.88%.
In terms of dividend growth, the company's current annualized dividend of $3.40 is up 2.1% from last year. Over the last 5 years, Smucker has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.83%. 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. Smucker's current payout ratio is 41%, meaning it paid out 41% of its trailing 12-month EPS as dividend.
SJM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $8.53 per share, representing a year-over-year earnings growth rate of 2.90%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, SJM presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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The J. M. Smucker Company (SJM) : Free Stock Analysis Report
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