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Smucker Hikes Dividend by 4% to Boost Shareholder Value

Despite softness in the coffee and pet foods segments, The J. M. Smucker Company SJM, has managed to keep its shareholders happy through regular dividend payments.

The board of directors recently approved an increase of 4% in its quarterly dividend, from $0.75 to $0.78 per common share. The dividend will be paid on Sep 1 to shareholders held in record at the close of business on Aug 11. This represents the company’s 16th consecutive year of dividend growth.

However, the dividend growth rate was lower when compared with year-ago numbers. Smucker increased its quarterly dividend by 12% in 2016, by 5% in 2015, by 10% in 2014 and by 11.5% in 2013.

In addition to dividend payment, the company actively repurchases shares. During the fourth-quarter fiscal 2017, the company completed the 3 million share repurchase program that was announced in February.

In fiscal 2017, the company returned over $775 million in the form of share repurchases and dividends, up from $750 million of cash returned to shareholders last year, reflecting strong cash flow. In fact, in the last five fiscal years, the company has returned over $3.1 billion to shareholders through dividends and share repurchases.

Stock Price Performance and Estimates Revision

If we look into the company’s share price performance over the past six months, we will notice that shares of Smucker underperformed the Zacks categorized Food–Miscellaneous/Diversified industry. In the said time frame, shares of the company have declined 12.5%, compared with the industry’s fall of 5.3%. Challenging coffee and pet foods segments seems to have pressurized the stock.

Moreover, the fourth-quarter fiscal 2017 results of Smucker were not quite impressive. While earnings during the quarter fell 19% year over year due to lower revenues and decline in gross profits, sales edged down 1% due to lower net price realization. The fall was witnessed in the U.S. Retail Pet Foods segment and an unfavorable mix in the U.S. Retail Coffee segment.

The dismal quarterly performance has also lowered analysts’ expectations. Estimates for the first quarter and for fiscal 2018 have gone down by a penny to reach $1.67 and $7.97 respectively, over the last 30 days.

Bottom Line

Despite such unfavorable trends, we are encouraged with Smucker’s acquisition of Big Heart Pet Brand, the launch of Dunkin Donuts K-cup pods and expanded distribution for the Natural Balance pet brand which are fueling sales. The company remains focused on expanding its business though sustained innovation, cost-cutting initiatives and efforts to expand e-commerce sales. Smucker currently carries a Zacks Rank #3 (Hold) and carries a long term growth rate of 7.3%.

Do Consumer Staples Stocks Still Interest You? Check these

Some better-ranked stocks in the same sector include Constellation Brands, Inc. STZ and Newell Brands Inc. NWL each carrying a Zacks Rank #2 (Buy) as well as Energizer Holdings, Inc. ENR sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Constellation Brands has an average positive earnings surprise of 11.7% for the past four quarters, with a long-term earnings growth rate of 18.2%.

Newell Brands generated an average positive earnings surprise of 7.7% over the trailing four quarters and has a long-term earnings growth rate of 12.1%.

Energizer Holdings as an average positive earnings surprise of 21.6% over the trailing four quarters and has a long-term earnings growth rate of 10%.

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