Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all of them, is investors’ dream. However, for income investors, the primary focus is generating consistent cash flow from every liquid investment.One way to accomplish that goal is investing in dividend stocks.
While cash flow can come from bond interest or interest from other types of investments, many income investors hone in on dividends. A dividend is the distribution of a company’s earnings paid out to shareholders; it’s often measured by its dividend yield, a metric that expresses a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Smucker in Focus
Smucker (NYSE: SJM) is a Consumer Staples stock whose shares have jumped 15.73% so far this year. The food maker is currently shelling out a dividend of 88 cents per share, with a dividend yield of 3.25%, making it one of a number of dividend stocks that income investors can consider. This compares to the Food – Miscellaneous industry’s yield of 0.1% and the S&P 500’s yield of 1.88%.
Taking a look at the company’s dividend growth, its current annualized dividend of $3.52 is up 5.7% from last year. In the past five years, Smucker has increased its annual dividend five times for an average annual increase of 7.62%. Any future dividend growth will depend on both earnings growth and the company’s payout ratio; a payout ratio is the proportion of a firm’s annual earnings per share that it pays out as a dividend. Smucker’s current payout ratio is 42%, meaning it paid out 42% of its trailing 12-month EPS as a dividend.
Looking at this fiscal year, SJM expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $8.40 per share, representing YoY earnings growth of 1.33%.
Bottom Line
From greatly improving stock profits and reducing overall portfolio risk to providing tax advantages, there are many different reasons for investors to embrace dividend stock. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend stocks, as it’s fairly uncommon to see high-growth businesses or tech start-ups offer their shareholders a dividend. Income investors must be conscious of the fact that dividend stocks tend to struggle during periods of rising interest rates. With that in mind, SJM is a compelling dividend stock. Not only is it a strong dividend payer, but the shares currently have a Zacks Rank of 3 (Hold).
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The J. M. Smucker Company (SJM): Free Stock Analysis Report
