J.M. Smucker Company (SJM) A reliable long-term dividend growth stock to invest in

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J.M. Smucker Company (SJM) A reliable long-term dividend growth stock to invest in

Published Date: 2018-06-07 | Source: Share Picks USA | Author: Bruce Ingram | Comments

J.M. Smucker Company (SJM) A reliable long-term dividend growth stock to invest in

Some US Dividend growth stocks are dropping into Bear Market territory which is opening up buying opportunities. I believe JM Smucker is one of these companies. The companies share price has dropped 20% this year without any major fundamental reason.

J.M. Smucker Company (SJM) is a leading supplier of consumer food and pet food products in the USA. The company was founded by Jerome Monroe Smucker in 1897. Their products can be found in over 90% of US households.

SJM owns many brands. Their main products are coffee, pet foods and snacks, peanut butter, fruit spreads, baking mixes etc. Some of the locally known brands are Five Roses, Carnation, Crosse & Blackwell. The company maintains a leading market share in its core brands.

The company's sales are broken down into 4 segments:

  • Retail coffee 28%
  • Retail Pet Foods 29%
  • Retail Consumer foods 28%
  • International Sales 14%

Smucker has been growing profitably for many years. Free cash flow has grown positively each year for the last 10 years. Due to economies of scale and recent cost saving activities the company's profits are above average.

In order to stay in touch with market demands Smucker continues to develop and introduce new products and brands. The company invests 4.4% of sales in capital spending.

One of the risks SJM faces is increasing commodity prices such as the price of coffee. Another risk is over paying for acquisitions and integrating acquisitions into the organisation.

Smucker's has been operating for 120 years, has sound management, has been paying an increasing dividend for 20 years and only pays out about 35% of profits in dividends. Last year the dividends increased by 12% and have increased by 9% per year for the last 20 years.

The company has a BBB credit rating from S&P.

The current PE ratio is low at 9.58. Market cap is $12.06 billion

The current dividend yield is 2.7% which is 17% above its average dividend yield, another indicator that the company could be undervalued.

Smuckers is a solid share for the dividend growth investor which could provide an annual rate of return in excess of 25% for the next 18 to 24 months if the share returns to its normal PE ratio.


Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research


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