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Smucker Announces Dividend Hike: What Else Should You Know?

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Some stocks are delighting investors, courtesy of impressive dividend payouts amid the coronavirus pandemic. One such stock is The J. M. Smucker Company (SJM - Free Report) , which announced its 19th straight year of dividend hike. It will now pay a quarterly dividend of 90 cents per share, up 2.3% from the prior rate of 88 cents. The increased dividend will be paid out on Sep 1, 2020 to shareholders of record as of Aug 14.

Notably, the company currently has a dividend payout of 40.2%, dividend yield of 3.3% and free cash flow yield of 10.1%. With an annual free cash flow return on investment of 7.6%, ahead of the industry’s 7.2%; the increased dividend is likely to be sustainable. Well, dividend payouts are one of the biggest enticements for investors and Smucker is committed to boosting shareholders’ wealth.

What Else Should You Know?

Smucker is benefitting from focus on innovation as well as buyout and partnership gains. We note that the company’s acquisition of Ainsworth (completed in May 2018) is boosting performance in the U.S. Retail Pet Foods category. Additionally, Smucker formed key partnerships with quite a few coffee companies. The agreement with Keurig Green Mountain (KGM) and Dunkin’ Brands Group, Inc, to manufacture and sell the K-Cup category of products, has been yielding positive results since fiscal 2016.


 

Moreover, the company is accelerating marketing support for growth brands. Smucker effectively launched advertising campaign for 10 of its biggest brands in fiscal 2020. Further, the company is undertaking expansions for one of its fastest growing brand — Uncrustables. Apart from this, e-commerce is a fast-growing retail channel of the company. In the digital realm, the coffee and pet food categories have been steadily expanding. During fourth-quarter fiscal 2020, e-commerce sales surged 66%, including a 60% jump in pet food sales and more than 90% surge in coffee sales. Management expects to keep witnessing continued strength in the e-commerce channel in the forthcoming periods.

Apart from this, burgeoning demand amid coronavirus-led stock piling boosted the company’s sales — particularly in March and April. Consequently, the top line increased 10% year over year in fiscal fourth-quarter. Shares of the company have gained 3.9% so far this year against the industry’s decline of 5.7%.

While coronavirus-led increased stay-at-home trends boosted Smucker’s retail business, the same dealt a blow to it’s away from home business. Increased social distancing severely hit demand for the away from home business due to closure of restaurants, schools, offices as and lodging. Consequently, the away from home business suffered a 15% sales decline in the fiscal fourth quarter, with a roughly 50% slump seen in April. We believe that, this is likely to persist as a headwind for this Zacks Rank #4 (Sell) stock, given the uncertainty surrounding the impact of coronavirus.

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