Up to date on January twenty seventh, 2023 by Jonathan Weber

At Positive Dividend, we regularly speak concerning the deserves of the Dividend Aristocrats. We consider 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 economic system.

Of the five hundred 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:

 

Every year, we individually assessment all of the Dividend Aristocrats. The subsequent 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 focus on the most important 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 $16 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 equivalent to Smucker’s, Jif, Folgers, and so forth. The corporate additionally owns a pet meals enterprise with manufacturers equivalent to Milk Bone and 9Lives.

Progress Prospects

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

Acquisitions have been a serious supply of enterprise development for the corporate prior to now:

Supply: Investor Presentation

The corporate often acquires smaller corporations which might be then benefitting from J.M. Smucker’s gross sales community. On prime of that, the corporate is ready to seize synergies in terms of administration and different areas, which drives the profitability of the businesses J.M. Smucker acquires.

Supply: Investor Presentation

Acquisitions prior to now included the Large Coronary heart Pet Manufacturers acquisition in 2015, which allowed the corporate to enter the pet meals market in power. The pet meals market is rising sooner than the meals and drinks market, thus acquisitions on this space increase J.M. Smucker’s natural development outlook. Value will increase are one other income development, as this permits J.M. Smucker to develop its prime line greater than quantity development alone would do.

The corporate reported its most up-to-date quarterly leads to November, showcasing income development of 8% 12 months over 12 months. Natural gross sales development was even higher, at 11%, primarily thanks to cost will increase, however forex charge actions (a strengthening US Greenback) made J.M. Smucker’s reported prime line develop rather less than the natural gross sales efficiency suggests.

J.M. Smucker noticed its earnings-per-share decline marginally, nevertheless, by 1%, as earnings-per-share dropped from $2.43 to $2.40, attributable to commodity value inflation that pressured the corporate’s margins.

In the long term, we consider that present margin headwinds from rising commodity costs will wane, or that the corporate will totally go on these rising prices to shoppers. 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 5% a 12 months in the long term, we consider.

Aggressive Benefits & Recession Efficiency

J.M. Smucker just isn’t the most important participant within the meals and drinks house by far, however it’s among the many main gamers within the segments it’s lively in, equivalent 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 shoppers, thus it’s not very probably that new market entrants will disrupt the corporate’s core enterprise. There’s, nevertheless, an obstacle in terms of the well being facet of meals. J.M. Smucker’s choices aren’t very wholesome on common, thus the corporate is uncovered to headwinds from shoppers shifting a few of their spending from the extra conventional meals J.M. Smucker provides to more healthy alternate options.

A serious benefit for J.M. Smucker is its excellent recession resilience. Customers do in the reduction of on their spending throughout financial downturns, however they accomplish that in discretionary areas — autos, electronics, attire, and so forth. They typically don’t actually minimize their spending on meals and drinks, which is why J.M. Smucker and most of its friends have outperformed throughout recessions prior to now.

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

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

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 charge of 15% in that time-frame — barely another firm has managed to carry out so nicely throughout the disaster.

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

J.M. Smucker’s recession resilience is one in every of its largest benefits and makes it an acceptable alternative from a danger perspective.

Valuation & Anticipated Returns

Utilizing the present share value of ~$150 and the midpoint for earnings steerage of $7.00 for the 12 months, J.M. Smucker trades for a price-to-earnings ratio of 21.4. 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 consistent with the corporate’s 10-year historic common.

Consequently, J.M. Smucker is at the moment overvalued. Returning to our goal price-to-earnings ratio by 2028 would cut back annual returns by round 5% over this time period. Other than modifications within the price-to-earnings a number of, future returns might be pushed by earnings development and dividends.

We anticipate 5% annual earnings development over the following 5 years. As well as, J.M. Smucker inventory is at the moment buying and selling with a dividend yield of two.7%.

Complete returns may include the next:

• 5% earnings development
• -5% a number of reversion
• 2.7% dividend yield

J.M. Smucker is thus anticipated to return round 3% per 12 months by 2028. This isn’t compelling, which is why we charge J.M. Smucker a “Promote” at the moment, regardless of the corporate’s robust recession resilience and dividend development monitor document.

Last Ideas

J.M. Smucker is a high quality firm with a robust dividend development monitor document and an excellent means to resist recessions and different macro crises.

However shares are buying and selling nicely above our truthful worth estimate proper now, which is why we don’t anticipate J.M. Smucker to generate compelling complete returns going ahead. The present dividend yield may be very stable and appears protected, however attributable to anticipated complete returns being solely within the 3% vary over the approaching years, we charge J.M. Smucker a promote at present costs.

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

When you’re in search of shares with distinctive dividend traits, take into account the next Positive Dividend databases:

The most important 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: