The J.M. Smucker Company (SJM) is a “Dividend Contender” that has increased its dividend for 20 consecutive years. After being overvalued for most of fiscal year 2017 (fiscal year ends in April) the company has since fallen into attractive valuation territory.
As a result, the company is available at a low P/E ratio relative to historical norms and offers a current dividend yield of 2.9%. Moreover, the company has consistently increased its dividend in line with its historical 10% earnings growth.
The Practical Side and Benefit of Dividends
Personally, I believe that it is undeniable that dividend income, if any, represents an important component of the total return provided to shareholders of any publicly traded company. More importantly, I believe that the dividend received from a publicly traded company represents significant investment benefits.
Therefore, I understand that I simultaneously have reduced the risk of owning that stock simply because I now have less money at risk.
Moreover, I did not have to sell any shares to receive that cash back, therefore, my beneficial ownership interest in the company remains intact. More simply stated, I still have all my shares.
Moreover, I believe that the dividend I receive also represents a return bonus. This belief is based on the reality that the payment of the dividend does not reduce the amount of earnings that the company reported on its last financial statements.
Therefore, my experience indicates that “Mr. Market” will continue to capitalize the company’s future earnings in the aggregate, just as they always have and do.
Furthermore, in the analyze out loud video on The J.M. Smucker Company that follows I will provide real-world evidence supporting the reality that earnings and/or cash flows drive capital appreciation and dividends paid to shareholders provide an additional income component and effectively a return of original investment.
The two combined, capital appreciation plus dividend income, represents the components that add up to total return.
The J.M. Smucker Company: FAST Graph Fundamental Analyze Out Loud Video
Summary and Conclusions
After being overvalued for most of fiscal year 2017 ending in April, the J.M. Smucker Company has moved into attractive valuation based on fundamentals. When a company is overvalued like J.M. Smucker was, it becomes very vulnerable to even a hint of bad news. J.M. Smucker’s most recent quarterly report and lowered guidance disappointed investors. However, I do not believe this company faces any threat of imminent demise.
It is a solid consumer staples company that produces strong and consistent earnings and cash flows. Future growth is expected to be lower than historical achievements, but I believe the current valuation compensates for that lower growth. Therefore, investors interested in a growing dividend income stream plus the potential for moderate capital appreciation might want to take a closer look at the J.M. Smucker Company.
— Chuck Carnevale[ad#wyatt-income]
Source: FAST Graphs
Disclosure: No position at the time of writing.