Please ensure Javascript is enabled for purposes of website accessibility

Instant Analysis: J.M. Smucker Sweetens Its Dividend by 12%

By Beth McKenna – Jul 20, 2016 at 12:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

How much does it matter that investors in the packaged food and coffee company are getting a double-digit dividend increase this year?

Image source: J.M. Smucker. 

What happened?

J. M. Smucker Co. (SJM 1.64%), the packaged food and coffee producer best known for its iconic jams, announced last week that its board of directors approved an increase in its quarterly dividend to $0.75 a share from $0.67 a share -- a juicy 12% hike. The dividend is payable Sept. 1 to shareholders of record on Aug. 12. 

This marks the 15 consecutive year that the company has raised its dividend. 

Smucker stock is currently yielding 1.8% over the trailing-12-month period, outpacing snack food giant Mondelez International's (MDLZ 2.36%) 1.5% yield, though falling short of North America chocolate king Hershey Co.'s (HSY 2.03%) 2.1% yield. Smucker's dividend yield has traditionally been about the same as Hershey's, though it has fallen behind because of its stock's outperformance over the last year -- a good "problem" to have. Smucker stock's total return over the one-year period through July 18 is 44%, versus 22.7% for Hershey and 10.2% for Mondelez. Moreover, Hershey's one-year total return was only about 10% until late June, when it shot up because of a takeover offer from Mondelez.

Does it matter?

It matters considerably that Smucker is raising its dividend this year and has consistently done so over the long term. This fact makes the company's stock more attractive than it would otherwise be and more tempting than the stock of some of its peers or competitors. 

Smucker's consistently increasing dividend has helped the stock's total return considerably outperform Mondelez and Hershey -- and most other companies in the packaged food and related spaces, for that matter -- over the long term. Here's the 10-year picture: 

SJM Total Return Price Chart

Data by YCharts.

Smucker's payout ratio (dividends paid to net income) for the trailing-12-month period is about 46%, suggesting it should be able to comfortably afford the dividend hike.

Hershey's dividend yield is currently higher than Smucker's, as previously noted, but this situation shouldn't last for long. Hershey's dividend level does not appear sustainable given its extremely high payout ratio of more than 97%. 

SJM Payout Ratio (TTM) Chart

Data by YCharts.

Beth McKenna has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

J.M. Smucker Stock Quote
J.M. Smucker
SJM
$154.01 (1.64%) $2.49
Mondelez International Stock Quote
Mondelez International
MDLZ
$67.61 (2.36%) $1.56
The Hershey Company Stock Quote
The Hershey Company
HSY
$235.17 (2.03%) $4.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.