Time to bring to you an undervalued dividend stock pick of the week!  We are talking about, none other than, the Ohio-Based JM Smucker Co (SJM)!  With a name like Smucker’s, it HAS to be good!  That is their key phrase and tag line and with the dividend stock metrics, I JUST may have to agree!  Let’s see why JM Smucker Co. is a dividend stock pick of the week.

the company & JM Smucker Brands

JM Smucker Co (SJM) has been around since 1897 or 124 years ago.  They are based in the home-state of Ohio, right here in Orrville; which is south of Cleveland and Akron, Ohio.  They have growtn their business significantly over each and every decade.

In 2002, Smucker’s, whom primary products were jellies and baking materials, picked up the mighty brands – JIF and Crisco!   Smucker’s wasn’t finished yet.  In 2008 they picked up one of the biggest coffee companies with Folgers.  Then, to keep up with competition and to diversify their brand portfolio, they also picked up Big Heart Pet Brands in 2015, diving into the pet industry.

Here is a snapshot depiction of the brands of the Smucker portfolio:

The brand portfolio is strong – we are talking Crisco, JIF, Folgers, Meow Mix and MANY others.  However, how has their performance been with all of this brand strength?  Are they a dividend stock to buy right now, during this month of September 2021 or should you hold off on buying Smucker’s stock right now?

Quarter 1 Release + Dividend Increase

Smucker’s released their recent quarter earnings release towards the end of August.  The results you’ll see do not look fantastic, but there are additional reasons, once those figures are adjusted.

Smucker’s divested the Crisco and Natural Balance businesses, which led to a reduction of overall net sales.  Once adjusted, net sales actually increased.

In addition, their balance sheet slightly improved, as current assets grew, in comparison to current liabilities.  This increases Smucker’s liquidity.

The issued guidance in the range of $8.25 to $8.65 for the full year, based on the current performance.  As you’ll see in the next section, the analyst expectations is also within that range.

Even before the earnings release, JM Smucker Co. had a nice little announcement.  A smooth 10% increase from $0.90 to $0.99 per share, per quarter.  During a pandemic, incredible.

Now that we see how Smucker’s earnings went and that they had a nice dividend increase announcement as well in July, let’s dive into the fundamental stock metrics!

Smucker’s Dividend Stock Metrics

Of course we will be running this stock through the Dividend Diplomats Stock Screener!  We will see if Smucker’s is an undervalued dividend stock to buy this month, based on pure metrics.  For those that are new to the Dividend Diplomat’s blog, the DD Stock Screener focuses on these 3 key stock metrics:

1. Price to Earnings Ratio (P/E) – We look for a price to earnings ratio < than the overall Stock Market.  The S&P 500’s P/E ratio is ~35x current earnings.
2. Payout Ratio – We aim for a payout ratio between of less than 60%.  We also like to see the perfect dividend payout ratio of 40% – 60%.
3. Dividend Growth – We like to see history of dividend growth in a company.

In addition, we do look at the bonus metric, that being the dividend yield.  Time to find out if Smucker’s (SJM) is a dividend stock to buy!

1.) Price to Earnings Ratio: Analysts, based on Yahoo Finance, are expecting earnings of $8.43.  As you can see above, the stock price for Smucker’s is $121.81.  Therefore, when you divide the stock price by the expectations of $8.43, this equates to a P/E ratio of 14.45, a fairly low P/E ratio for a consumer good stock.  Further, Smucker’s is trading significantly lower than the S&P 500.

2.) Dividend Payout Ratio: Smucker’s pays a $0.99 dividend per share, per quarter, or $3.96 in dividends per year.  Similarly, divide $3.96 over $8.43 and the dividend payout ratio is a solid 47%!  Smucker’s dividend payout ratio is in the perfect dividend ratio sweet spot, between 40% and 60%.  This shows that Smucker’s has room to not only protect their dividend, but GROW their dividend going forward.  In addition, Smucker’s reinvests approximately half of their earnings right BACK into the business.

3.) Dividend Growth: Smucker’s is on a current dividend streak of 18+ years, on the road to being a dividend aristocrat!  The dividend growth rate for Smucker’s is around 5-6%, on average.

Bonus – Dividend Yield: Based on a forward dividend of $3.96 and a share price of $121.81, the dividend yield is 3.25%!  The dividend yield is MORE than 2x the S&P 500, which currently yields 1.29%, as you’ll see in the snip below.

Overall, the dividend stock metrics are ROCK SOLID for Smucker’s and they prove to be a stock to consider buying now in this overvalued stock market era.

conclusion

When thinking and looking for a place to invest your hard-earned, saved money, that is on the sideline, there are few stocks out there showing strong signs of undervaluation.  The S&P 500 is trading at over 35x current earnings, hitting at or near record highs and the yield is also low, due to the market appreciation.

When I think of a safe industry – consumer goods comes to mind.  When a pandemic occurs or if people need to save money to maintain their financial well-being, food is a priority.  Smucker’s and their peanutbutter brand Jif, coffee brand Folgers and many others, are staples in cupboards in a normal course of life and especially during difficult times.

The JM Smucker Co. (SJM) is showing signs of undervaluation, there is no doubt about it.  We own the stock in my wife’s portfolio and will have to add more here, once we have more capital.  I would be highly interested in adding to the Smucker position and buying this stock now at/under $122 per share.  If you’d like to see my portfolio, by the way, feel free to check this page.

What do you think of Smucker’s stock?  Is this a stock to buy now?  Would you buy Smucker’s stock here in September?  Share your feedback and comments below.  As always, good luck and happy investing!

-Lanny