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.
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.
Smucker in Focus
Headquartered in Orrville, Smucker (SJM) is a Consumer Staples stock that has seen a price change of 29.76% so far this year. The food maker is currently shelling out a dividend of $0.85 per share, with a dividend yield of 2.8%. This compares to the Food - Miscellaneous industry's yield of 0.11% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $3.40 is up 2.1% from last year. In the past five-year period, Smucker has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.83%. 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. 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, with earnings expected to increase 2.90% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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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