The company’s last dividend increase was in July 2012 when the Board of Directors approved an 8.30% increase to 52 cents/share. The company’s largest competitors include Conagra (CAG), Kraft (KFT) and Hershey (HSY).
Over the past decade this dividend growth stock has delivered an annualized total return of 11.60% to its shareholders.
The company has managed to deliver an 8% average increase in annual EPS since 2003. Analysts expect J. M. Smucker to earn $5.15 per share in 2013 and $5.65 per share in 2014. In comparison, the company earned $4.06/share in 2012.
Future increases in earnings would likely be generated by acquisitions and some by cost restructuring. The company acquired Folgers Coffee by Procter & Gamble (PG) in 2008. I n 2011 it purchased private held Rowland Coffee Roasters and in 2012 it acquired Sara Lee’s North American Coffee and Hot Beverage division. In addition, the company has also taken the initiative to improve operations and production efficiencies, and improving its cost base. However, the company seems to be struggling with passing on cost increases over to consumers, as it recently had to decrease prices for Folgers coffee in order to maintain market share.
The return on equity has decreased 13.70% in 2003 to 8.70% in 2012. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 11.10% per year over the past decade, which is much higher than the growth in EPS. This was achieved mainly through the expansion in the dividend payout ratio.
An 11% growth in distributions translates into the dividend payment doubling almost every six and a half years. If we look at historical data, going as far back as 1997 we see that J. M. Smucker has actually managed to double its dividend every seven and a half years on average.
The dividend payout ratio has increased from 37.60% in 2003 to 46% in 2012. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, J. M. Smucker is slightly overvalued, trading at 21.10 times earnings and yielding 2.40%. I would consider adding to my position in the stock on dips below 81.50/share.
Full Disclosure: Long PG
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