Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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
Headquartered in Orrville, Smucker (SJM) is a Consumer Staples stock that has seen a price change of 21.25% so far this year. The food maker is paying out a dividend of $0.85 per share at the moment, with a dividend yield of 3% compared to the Food - Miscellaneous industry's yield of 0.12% and the S&P 500's yield of 1.97%.
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 7.62%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Smucker's payout ratio is 41%, which means it paid out 41% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SJM expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $8.52 per share, representing a year-over-year earnings growth rate of 2.77%.
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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SJM is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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The J. M. Smucker Company (SJM) : Free Stock Analysis Report
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