Should you buy the Scotts Miracle-Gro Company (NYSE: SMG) for its next dividend?
It looks like The Scotts Miracle-Gro Company (NYSE: SMG) is set to be ex-dividend within the next three days. The ex-dividend date is one business day before the registration date, which is the deadline for shareholders to be on the books of the company to be eligible for a dividend payment. It is important to know the ex-dividend date, as any transaction in the share must have been settled by the registration date at the latest. This means that investors who buy Scotts Miracle-Gro shares on or after May 26 will not receive the dividend, which will be paid on June 10.
The company’s next dividend payment will be $ 0.62 per share, following last year when the company paid a total of $ 2.48 to shareholders. Last year’s total dividend payouts show Scotts Miracle-Gro has a trailing return of 1.2% on the current share price of $ 215. Dividends make a large contribution to investment returns for long-term holders, but only if the dividend continues to be paid. So we need to check if dividend payments are covered and if profits are increasing.
Check out our latest review for Scotts Miracle-Gro
Dividends are generally paid out of company profits. If a company pays more in dividends than it earned in profits, then the dividend could be unsustainable. Fortunately, Scotts Miracle-Gro’s payout ratio is modest, at only 25% of profits. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by the cash flow. Fortunately, his dividend payments only represented 34% of the free cash flow he generated, which is a comfortable payout ratio.
It is positive to see that the Scotts Miracle-Gro dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend is reduced.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with strong growth prospects generally make the best dividend payers because dividends are easier to grow when earnings per share improve. If business slows down and the dividend is reduced, the company could see its value drop precipitously. It is encouraging to see that Scotts Miracle-Gro has grown its profits rapidly, increasing 36% per year over the past five years. Scotts Miracle-Gro pays less than half of its profits and cash flow, while simultaneously increasing earnings per share at a rapid rate. This is a very favorable combination which can often lead to a multiplication of the dividend in the long run, if profits increase and the company pays a higher percentage of its profits.
Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Over the past 10 years, Scotts Miracle-Gro has increased its dividend by approximately 9.5% per year on average. It’s encouraging to see the company increasing its dividends as profits rise, which at least suggests some corporate interest in rewarding shareholders.
Should investors buy Scotts Miracle-Gro for the upcoming dividend? Scotts Miracle-Gro has grown its earnings at a rapid pace and has a moderately low payout ratio, which means it is reinvesting heavily in its business; a sterling combination. Overall, we think this is an engaging combination worthy of further research.
On that note, you’ll want to research the risks that Scotts Miracle-Gro faces. To help you, we have discovered 2 warning signs for Scotts Miracle-Gro (1 is a little worrying!) Which you should be aware of before buying the shares.
However, we wouldn’t recommend just buying the first dividend-paying stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
When trading Scotts Miracle-Gro or any other investment, use the platform seen by many as the trader’s gateway to the global market, Interactive brokers. You benefit from the lowest * trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Annual Online Review 2020
Do you have any comments on this article? Concerned about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.