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Why J.M. Smucker Looks Unappealing despite Dividend Hike



J.M. Smucker raised its quarterly dividend

J.M. Smucker (SJM) has hiked its quarterly dividend from $0.78 per share to $0.85 per share, an increase of 9%. That marks 17 consecutive years that it has increased its dividend. The rate of growth also improved YoY (year-over-year) since the company raised its dividend by only 4% last year.

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Why investors consider SJM stock unappealing

At first glance, J.M. Smucker’s 9% dividend hike and low valuation multiple catch investors’ eyes. However, the weak state of packaged food companies could make SJM stock unappealing. As of July 13, J.M. Smucker was trading at a forward PE multiple of 13.5x, which is 22% below its four-year historical average of 17.4x. The recent increase in dividend lifted its dividend yield to 3%.

However, persisting challenges on the profitability front are likely to restrict the upside potential of SJM stock in the near term. Analysts expect J.M. Smucker’s earnings to mark a 2.3% growth in fiscal 2019, which is well below the earnings growth outlook for other major packaged companies, including Kellogg (K) and Mondelēz International (MDLZ).

J.M. Smucker’s bottom line is likely to take a hit from increased interest expenses related to the acquisition of Ainsworth Pet Nutrition. Retaliatory tariffs by Canada are also expected to remain a drag on its profitability. Along with J.M. Smucker, General Mills (GIS), Kraft Heinz (KHC), and Campbell Soup (CPB) also offer healthy dividend yields and are trading at lower valuation multiples. However, weak sales and earnings growth projections make these stocks seem unattractive.


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