Have you been keeping an eye on The Scotts Miracle-Gro Company's ( NYSE:SMG ) upcoming dividend of US$0.55 per share payable on the 10 June 2019? Then you only have 2 days left before the stock starts trading ex-dividend on the 24 May 2019. What does this mean for current shareholders and potential investors? Below, I will explain how holding Scotts Miracle-Gro can impact your portfolio income stream, by analysing the stock's most recent financial data and dividend attributes.
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How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Scotts Miracle-Gro fit our criteria?
The current trailing twelve-month payout ratio for the stock is 39%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect SMG's payout to increase to 48% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.6%. Furthermore, EPS should increase to $6.24. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow . Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. In the case of SMG it has increased its DPS from $0.50 to $2.2 in the past 10 years. It has also been paying out dividend consistently during this time, as you'd expect for a company increasing its dividend levels. This is an impressive feat, which makes SMG a true dividend rockstar.
Compared to its peers, Scotts Miracle-Gro generates a yield of 2.5%, which is high for Chemicals stocks but still below the market's top dividend payers.
With these dividend metrics in mind, I definitely rank Scotts Miracle-Gro as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three pertinent aspects you should further examine:
- Future Outlook : What are well-informed industry analysts predicting for SMG’s future growth? Take a look at our free research report of analyst consensus for SMG’s outlook.
- Valuation : What is SMG worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SMG is currently mispriced by the market.
- Other Dividend Rockstars : Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here .
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org . This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.