Dividend Aristocrats In Focus: The J.M. Smucker Company

Up to date on March twenty fifth, 2024 by Bob Ciura

At Positive Dividend, we regularly discuss in regards to the deserves of the Dividend Aristocrats. We imagine this unique group of shares broadly has robust manufacturers, constant income even throughout recessions, and sturdy aggressive benefits. These qualities enable the Dividend Aristocrats to lift their dividends yearly, whatever the state of the financial system.

Of the ~505 shares comprising the S&P 500 Index, simply 68 qualify as Dividend Aristocrats. You possibly can obtain a duplicate of the complete listing of all 68 Dividend Aristocrats, full with metrics like dividend yields and P/E ratios, by clicking on the hyperlink under:

Disclaimer: Positive Dividend will not be affiliated with S&P International in any means. S&P International owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet relies on Positive Dividend’s personal overview, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s primarily based. Not one of the info on this article or spreadsheet is official knowledge from S&P International. Seek the advice of S&P International for official info.

Annually, we individually overview all of the Dividend Aristocrats. The following within the collection is The J.M. Smucker Firm (SJM).

J.M. Smucker has an extended historical past of dividend development, having raised its dividend for 26 years in a row. This text will talk about the main components for J.M. Smucker’s lengthy dividend historical past and its outlook.

Enterprise Overview

J.M. Smucker has been in enterprise for greater than 100 years. It began out all the best way again within the nineteenth century when the corporate was based in 1897 at a small cider mill in Orrville, Ohio.

Immediately, J.M. Smucker has a market capitalization of $13 billion and generates annual income of greater than $8 billion. J.M. Smucker is a packaged meals and drinks firm that owns well-known manufacturers corresponding to Smucker’s, Jif, Folgers, and so forth. The corporate additionally owns a pet meals enterprise with manufacturers corresponding to Milk Bone and 9Lives.

Supply: Investor Presentation

In late February, Smucker’s reported (2/27/24) outcomes for the third quarter of fiscal 2024, which ends on April thirtieth, 2024. Forex-neutral natural gross sales grew 6% over the prior yr’s quarter, largely due to robust gross sales of cat meals in addition to materials worth hikes. The stable volumes amid robust worth hikes are testaments to the energy of the manufacturers of the corporate.

Adjusted earnings-per-share grew 12%, from $2.21 to $2.48, and exceeded the analysts’ estimates by $0.21. Smucker’s barely improved its steering for fiscal 2024. It now expects comparable gross sales development of 8.75% (vs. 8.5%-9.0% beforehand) and narrowed its steering for adjusted earnings-per-share from $9.25-$9.65 to $9.45-$9.65.

Development Prospects

J.M. Smucker’s business isn’t rising quick, as demand for meals will not be rising an excessive amount of primarily based on financial improvement. As a substitute, meals consumption is mostly rising rather less than financial output, as it’s largely tied to inhabitants development. Nonetheless, J.M. Smucker can generate development in numerous methods, regardless of being energetic in a lower-growth business.

Acquisitions have been a significant supply of enterprise development for the corporate up to now.

The corporate frequently acquires smaller corporations which can be then benefitting from J.M. Smucker’s gross sales community. On high of that, the corporate is ready to seize synergies with regards to administration and different areas, which drives the profitability of the businesses J.M. Smucker acquires.

On November seventh, 2023, Smucker’s accomplished the acquisition of Hostess Manufacturers (TWNK) in a cash-and-stock cope with worth of $5.6 billion, which incorporates debt. Hostess Manufacturers has many candy baked items manufacturers, which is able to broaden the product portfolio of Smucker’s and create synergies. Nonetheless, the deal worth is about 13.2 instances EBITDA of Hostess Manufacturers, after the anticipated synergies have been taken into consideration.

In the long term, we imagine that present margin headwinds from rising commodity costs will wane, or that the corporate will absolutely go on these rising prices to customers. Some natural enterprise development, some M&A, and the influence of share repurchases ought to enable J.M. Smucker to develop its earnings-per-share by round 4% a yr in the long term, we imagine.

Aggressive Benefits & Recession Efficiency

J.M. Smucker will not be the biggest participant within the meals and drinks house by far, however it’s among the many main gamers within the segments it’s energetic in, corresponding to espresso bought at retailers, peanut butter and different breakfast spreads, pet meals, and so forth.

J.M. Smucker’s manufacturers are well-known and appreciated amongst customers, thus it isn’t very probably that new market entrants will disrupt the corporate’s core enterprise.

A significant benefit for J.M. Smucker is its excellent recession-resilience. Customers do in the reduction of on their spending throughout financial downturns, however they usually achieve this in discretionary areas — autos, electronics, attire, and so forth. For this reason J.M. Smucker and most of its friends have outperformed throughout recessions up to now.

The corporate’s earnings-per-share efficiency through the Nice Recession is under:

2007 earnings-per-share of $3.15
2008 earnings-per-share of $3.77 (20% improve)
2009 earnings-per-share of $4.37 (16% improve)
2010 earnings-per-share of $4.79 (10% improve)

We see that J.M. Smucker didn’t solely handle to develop its earnings-per-share throughout yearly of the Nice Recession, however it even generated a really compelling common development fee of 15% in that timeframe — barely some other firm has managed to carry out so properly through the disaster.

The identical held true through the pandemic, as J.M. Smucker additionally managed to develop its earnings-per-share by 14% in 2020 when the financial system was affected by lockdowns and different COVID measures.

J.M. Smucker’s recession resilience is one in all its largest benefits and makes it an acceptable selection from a threat perspective.

Valuation & Anticipated Returns

Utilizing the present share worth of ~$123 and the midpoint for earnings steering of $8.05 for the yr, J.M. Smucker trades for a price-to-earnings ratio of 15.3. Given the corporate’s robust recession efficiency, however not overly robust development outlook, we really feel {that a} goal price-to-earnings ratio of 16 is acceptable. That is additionally roughly according to the corporate’s 10-year historic common.

Because of this, J.M. Smucker is barely undervalued. An increasing P/E a number of might add 0.9% to SJM’s annual returns over the subsequent 5 years. Other than adjustments within the price-to-earnings a number of, future returns can be pushed by earnings development and dividends.

We anticipate 4% annual earnings development over the subsequent 5 years. As well as, J.M. Smucker inventory is at the moment buying and selling with a dividend yield of three.4%.

Whole returns might include the next:

4% earnings development
0.9% a number of growth
3.4% dividend yield

J.M. Smucker is thus anticipated to return round 8.3% per yr by 2029. It is a stable anticipated fee of return, however not excessive sufficient to warrant a purchase suggestion.

Last Ideas

J.M. Smucker is a top quality firm with a powerful dividend development monitor file and an excellent capability to face up to recessions.

Shares are buying and selling barely under our truthful worth estimate proper now, resulting in excessive single-digit anticipated whole returns. The present dividend yield may be very stable and appears protected, however as a consequence of anticipated whole returns being solely within the 8%-9% vary over the approaching years, we fee J.M. Smucker a maintain proper now.

Moreover, the next Positive Dividend databases comprise essentially the most dependable dividend growers in our funding universe:

In case you’re searching for shares with distinctive dividend traits, think about the next Positive Dividend databases:

The main home inventory market indices are one other stable useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: