Last update on 2024-06-27

JM Smucker (SJM) - Dividend Analysis (Final Score: 6/8)

Conducting an 8-criteria dividend analysis on JM Smucker (SJM) reveals a strong score of 6/8, highlighting its attractive dividend policy and stability.

Short Analysis - Dividend Score: 6

We're running JM Smucker (SJM) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis of JM Smucker (SJM) based on 8 criteria provides a dividend score of 6, suggesting the company has a fairly strong dividend policy. Key points include: 1) The dividend yield of 3.2917% is notably above the industry average, indicating an attractive option for income investors. 2) The average annual dividend growth rate is significantly above 5%, but there is high volatility. 3) The average payout ratio is a healthy 32.12%, showing good financial management. 4) Although dividends are generally well covered by earnings, recent years show some concern. 5) Dividends are also generally well covered by cash flow, but with recent decreases in coverage ratios. 6) SJM has demonstrated stable and increasing dividend payments for over 20 years. 7) The company has been paying dividends consistently for over 25 years. 8) SJM has engaged in reliable stock repurchases, enhancing shareholder value.

Insights for Value Investors Seeking Stable Income

Overall, JM Smucker (SJM) shows a strong and reliable dividend policy, making it a solid choice for income-focused investors. The main points to monitor would be the recent volatility in earnings and cash flow coverage ratios. If these concerns are addressed, SJM could continue to be a reliable source of dividend income. Investors looking for long-term stability and dividend growth should consider JM Smucker as a worthwhile investment option.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is a key measure for income-focused investors seeking steady income streams.

In analyzing the dividend yield for JM Smucker (SJM), currently at 3.2917%, we find it significantly higher than the industry average of 1.77%. This gap suggests SJM provides a more attractive return for income-focused investors compared to its peers. Examining the historical trends over the past 20 years, SJM's dividend yield has been consistently improving. Notably, years like 2008 saw an outsized yield of 14.4373%, highlighting exceptional performance during market downturns. Its yield approaches highs like 3.487% in 2018, underscoring effective dividend policies. SJM recently steadily increased its dividend payouts from $0.89 per share in 2003 to $4.16 in 2023, aligning well with the routes of income generation. Importantly, this yield is driven by a combination of growing dividends and a relatively stable to appreciating stock price, although the recent dip in 2023 stock price to $126.38 should be monitored. In conclusion, SJM's high dividend yield compared to the industry is definitely a positive indicator for dividend-seeking investors.

Average annual Growth Rate higher than 5% in the last 20 years?

the Dividend Growth Rate over the last 20 years, which should be higher than 5%, to assess the consistency and sustainability of the company's dividend policy.

The year-on-year data for SJM shows significant fluctuations in the dividend-per-share ratio, with an average dividend ratio of 24.85%. However, figures such as 430.51% in 2008 and -78.12% in 2009 indicate extreme volatility, which is not typical for companies with stable and growing dividends. While the average is much higher than 5%, interpreting it must be cautious due to considerable variances in different years. Further analysis is needed to ascertain the sustainability of this average rate, especially considering the consistency of the positive growth years versus the highly volatile ones.

Average annual Payout Ratio lower than 65% in the last 20 years?

Criteria 1.2 focuses on the average payout ratio, which represents the proportion of earnings paid out as dividends to shareholders, averaged over the last 20 years. This measure is critical as it helps investors evaluate the company’s dividend sustainability. A payout ratio lower than 65% generally indicates that the company retains enough earnings to reinvest in growth, pay down debt, or build financial resilience.

In the case of JM Smucker (SJM), the average payout ratio over the last 20 years is 32.12%, which is well below the 65% threshold. This trend is favorable, as it shows the company is maintaining a conservative approach towards its dividend payouts while preserving a significant portion of its earnings for other strategic uses. This prudent financial management aligns with the company's sustained ability to pay dividends, given that even in 2022 and 2023, when the payout ratios spiked to 68.86% and a negative value due to non-recurring events, the long-term average remains healthy.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

Earnings per Share (EPS) and Dividend per Share (DPS) are key indicators for assessing dividend coverage. For JM Smucker (SJM), EPS has shown variability over the years, with notable declines in 2015 and 2023. Conversely, DPS has consistently increased, indicating a stable dividend policy. However, the dividend coverage ratio (EPS divided by DPS) reveals insights into the sustainability of payouts. Generally, a ratio above 2 suggests strong coverage, while ratios below 1 can indicate potential payout risks. Most years show adequate coverage, but 2015 and 2023 feature alarming ratios, particularly 2023 where EPS turned negative, impacting the sustainability of dividends. Overall, the dividends were reasonably covered by earnings in most years, but recent fluctuations raise concerns.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow is important because it indicates that a company is generating sufficient cash to sustain its dividend payouts, suggesting financial stability and potential for future dividend growth.

For JM Smucker (SJM), the trend of dividends covered by cash flow reveals some volatility over the past two decades. Ratios below 1 indicate instances where dividends paid out exceeded free cash flow generated, while ratios above 1 suggest sufficient cash flow to cover dividends. Notably, in 2004, the ratio reached a high of 1.77, indicating robust cash flow relative to dividend payout. However, the years 2022 and 2023 show ratios of 0.58 and 0.6, respectively, which are relatively lower and suggest that the company's cash flow efficiency in covering dividends has decreased. Sustained low coverage ratios could potentially pressure JM Smucker's ability to maintain or grow its dividends. These trends should be carefully monitored, looking for a shift towards consistently higher coverage ratios indicative of stronger financial health.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments indicates the company's robust earnings and financial health over time, which is attractive to income-seeking investors.

Over the past 20 years, JM Smucker (SJM) has shown exceptional stability in its dividend payments. The dividend per share has increased steadily from $0.89 in 2003 to $4.16 in 2023. There is no year in which dividends dropped by more than 20%. The only anomaly is in 2008 when the per-share dividend spiked to $6.26. Ignoring this outlier, the dividends remained stable and trended upwards, making SJM a reliable option for income-seeking investors. This positive trend signals a healthy financial strategy and consistent earnings growth.

Dividends Paid for Over 25 Years?

Assessing whether JM Smucker has paid dividends for over 25 years is crucial as it demonstrates the company's long-term financial health and commitment to returning value to shareholders. Consistent dividend payments over such a period highlight stability and can boost investor confidence.

JM Smucker (SJM) has shown a consistent dividend payment trend over the past 25 years without any interruptions. Starting from a dividend per share of $0.5499 in 1998, the payout has steadily increased to $4.16 in 2023. This long-standing record reflects SJM’s robust financial management and solid earnings capability, which bodes well for investors looking for a reliable income stream. Additionally, the notable increase in dividend per share, particularly from $1.18 in 2008, up to $4.16 in 2023, signals a strong and growing profitability. Overall, this trend is very positive for long-term and income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases

The interpretation of SJM's stock repurchases over the past 20 years shows that SJM has had consistent stock buybacks, especially from 2007 onward. The total number of shares outstanding decreased from 57,621,875 in 2005 to 10,620,000 in 2023. This demonstrates SJM's strategic effort to return value to shareholders. The share count dropped significantly multiple times, particularly in the years 2007, 2008, 2011-2014, and 2017-2023, aligning with the average buyback rate of around 4.9199% per year. Such consistent buybacks signal confidence in the company's continued profitability and desire to enhance shareholder value, marking a good trend for investor interests.