Can Smucker's Shareholder-Friendly Moves Help Revive Stock?

The J. M. Smucker Company SJM remains committed toward rewarding shareholders, evident from its latest dividend hike. Incidentally, management approved a quarterly dividend hike of 9% from 78 cents per share to 85 cents. The new dividend will be paid on Sep 4, 2018 to shareholders of record as on Aug 17. This brings the company’s annualized dividend to $3.40 per share, representing an increase from the previously annualized rate of $3.12.

Notably, this marked Smucker’s 17th straight year of dividend hike. Prior to this, the company raised its dividend by 4% from 75 to 78 cents a share, in July 2017.

Dividend hike is frequent among companies with a stable cash position and healthy cash flows. Therefore, we believe that such hikes not only enhance shareholders’ return but raise the market value of the stock as well. Basically, through these dividend increases companies persuade investors to either buy or hold the scrip instead of selling it.

Apart from Smucker, other consumer staple companies like Philip Morris PM, Altria Group, Inc. MO, and Pinnacle Foods Inc. PF have also raised their dividends. Last month itself, Philip Morris hiked its quarterly dividend by 6.5% to $1.14 cents per share. Altria raised its quarterly dividend by 6.1% to 70 cents per share in March 2018 and Pinnacle Foods announced a quarterly dividend hike of 14% to 32.50 cents per share in August 2017.

Is Smucker Up for Revival?

Coming back to Smucker, we believe that such shareholder-friendly moves should draw investors’ attention and raise their confidence in this Zacks Rank #5 (Strong Sell) stock that has lost 7.2% in the past three months, against the industry’s 4.7% growth. Well, Smucker has been ailing under headwinds like lower net price realization and rising freight expenses.

Nevertheless, we expect the company’s focus on innovations, and strategic buyouts and divestitures to provide a cover to these hurdles. To this end, earlier this month, Smucker unveiled an agreement to sell its baking business to Brynwood Partner in a transaction worth $375 million. Incidentally, the baking category has been sluggish and hampering the performance of the broader U.S. Retail Consumer Foods segment. Considering this, the company’s decision to divest the unit is justified.

By selling underperforming businesses, Smucker expects to make better use of its resources through investment in other potential categories. Further, the company identifies robust opportunities in its pet products, coffee and snacks businesses, and intends to concentrate more on these areas. Recently, the company concluded the acquisition of Ainsworth Pet Nutrition, LLC., a renowned name in the premium pet foods segment with popular brands like Rachael Ray Nutrish.

This is not the first time that Smucker has undertaken such efforts to strengthen its footing in pet foods. In 2015, the company acquired Big Heart Pet Brand that added iconic brands such as Meow Mix and Kibbles 'n Bits. Moving on, the company has formed key partnerships with coffee companies like Rowland Coffee, Keurig Green Mountain and Dunkin’ Brands Group, Inc., along with other food brands such as Sahale Snacks and Enray Inc. among others.

That said, let’s see if better days await Smucker.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The J. M. Smucker Company (SJM) : Free Stock Analysis Report
 
Pinnacle Foods Inc. (PF) : Free Stock Analysis Report
 
Altria Group, Inc. (MO) : Free Stock Analysis Report
 
Philip Morris International Inc. (PM) : Free Stock Analysis Report
 
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