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Why J M Smucker Co passes three vital dividend tests

In times of great uncertainty, stocks with solid yields and track records of consistent and well-financed dividend growth are like gold dust. For investors right across the market-cap range, decent dividends are a pointer to potentially good quality stocks - such as J M Smucker Co (NYQ:SJM).

The hard part is knowing what to look for. With so many variables to think about, choosing between dividend stocks can be hard work. But if you keep a few simple rules in mind, the hunt for reliable payouts can be a lot easier. Let’s look at the J M Smucker Co dividend as an example of how this works.

GET MORE DATA-DRIVEN INSIGHTS INTO NYQ:SJM »

Rules for finding dividend shares

1. High (but not excessive) dividend yield

Yield is an important dividend metric because it tells you the percentage of how much a company pays out in dividends each year relative to its share price. That makes it easy to compare dividend payouts right across the market.

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High yields are obviously appealing but be careful of excessively high yields (usually above 10%) because they can be a sign of problems. When the market suspects a company may be unable to sustain its dividend, the share price will fall and actually push the yield higher - and this can be a trap. So it pays to be wary of excessive yields.

  • J M Smucker Co has a dividend yield of 3.34%.

2. Dividend growth

Another important marker for income investors is a track record of dividend growth - and evidence that the growth will continue. Consistent dividend growth can be a pointer to companies that are carefully managing their payout policies - and rewarding their shareholders over time. Rather than aggressively dishing out earnings, dividend growth companies tend to have more modest yields, but are better at sustaining their payouts.

  • J M Smucker Co has increased its dividend payout 9 times over the past 10 years - and the dividend per share is forecast to grow by 2.81% in the coming year.

3. Dividend safety

Attractively high yields obviously turn heads - but it’s important to know that a dividend is affordable. Dividend Cover (similar to the payout ratio) is a go-to measure of a company's net income over the dividend paid to shareholders. It’s calculated as earnings per share divided by the dividend per share and helps to indicate how sustainable a dividend is.

Dividend cover of less than 1x suggests that the company can’t fund the payout from its current year earnings - and might be relying on other sources of funds to pay it.

  • J M Smucker Co has dividend cover of 2.13.

Next steps

With these important rules, you can track down shares that offer a reasonable yield, with a record of growth and safety. On this basis, J M Smucker Co could be worth a closer look.

To find out more you might want to take a look at the J M Smucker Co StockReport from the award-winning research platform, Stockopedia. StockReports contain a goldmine of information in a single page and can help to inform your investment decisions.

To find more stocks like J M Smucker Co, you'll need to equip yourself with professional-grade data and screening tools. This kind of information has traditionally been closely guarded by professional fund managers. But our team of financial analysts have carefully constructed this screen - Stockopedia’s Dividend Stock Ideas - which gives you everything you need. So why not come and take a look?

Plus, if you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.