JM Smucker Company (SJM) manufactures and markets branded food products primarily in the United States, Canada and internationally.
The company’s final dividend increase came last week when the board approved a 10% increase to 99 cents / share.
Over the past decade, this dividend growth stock has brought shareholders an annualized total return of 8.33%.
JM Smucker Company managed to increase earnings from $ 4.05 / share in 2011 to $ 7.79 / share in 2021.
The EPS figures are not adjusted for amortization related to intangible assets arising from acquisitions. These amortization artificially pushes earnings per share by $ 2.08 / share in 2021, $ 2.07 in 2020, $ 2.11 in 2019, and $ 1.82 in 2018. The company is expected to post adjusted earnings generate from $ 8.70 to $ 9.10 / share in 2022. For comparison, adjusted earnings per share for 2021 was $ 9.12 / share.
Amortization / share
Future increases in earnings are expected to be generated through acquisitions and, in some cases, through cost restructuring. The company has a track record of acquisitions that work. The company has taken the initiative to improve operational and production efficiency and improve its cost base. The demand for products in Smucker’s end markets is stable and would grow slowly over time.
The demand for coffee, peanut butter, jelly, and edible oils is pretty stable, resulting in repeatable sales to consumers once you have established that relationship. However, the industry is highly competitive, which is why the company has to constantly spend money on marketing, as well as rising costs and may not be able to pass them on to consumers.
International sales make up less than a quarter of sales, which offers an opportunity for growth. Product innovations could also offer growth opportunities.
One risk factor to be aware of is that sales to Wal-Mart account for over a quarter of its revenue. This is a huge reliance on the world’s largest retailer, known for their stance on keeping costs down. On the flip side, this is a mutually beneficial relationship as customers looking for a particular brand may be turned away by a retailer if they can’t find it.
The number of shares outstanding remained largely unchanged. While it declined between 2009 and 2015, the number of shares was increased in 2016 through a strategic acquisition. You only bought back a negligible amount of stock.
The annual dividend payment has risen 8.70% per year over the past ten years, outperforming EPS growth. This was achieved primarily through the expansion of the payout ratio.
A payout growth of 8.70% means that the dividend payment will double almost every eight years. If we look at historical data that dates back to 1978, we see that JM Smucker actually managed to double his dividend on average every seven years.
The payout ratio increased from 39.10% in 2007 to 46% in 2016. A lower payout is always an advantage as it leaves room for consistent dividend growth and minimizes the impact of short-term fluctuations in earnings.