Update: Scotts Miracle-Gro Special Dividend & Share Buyback Announced

Aug.12.14 | About: The Scotts (SMG)

Summary

Sales in the lawn & garden category at mass retailers slump while home center specialty store sales grow in the low single digits.

Despite almost no revenue growth over last 7 years, company sees its long-term growth rate between 3% and 5%.

In my opinion, the 42% surge in the price of the stock during 2013 was largely the result of gains in the S&P 500 and remains unwarranted.

By G C Mays

As the company previously discussed, Scotts Miracle-Gro declared a special dividend of $2.00 per share. In addition to the special dividend, the company increased its quarterly dividend to $0.45 per share. In an unanticipated move, the company also announced a new share buyback program of $500 million. The originally planned distribution to shareholders totaled $125 million so investors may find this a welcome surprise. CEO Jim Hagedorn said,

Our recent actions should be viewed as a sign of confidence in the continued success of our business and the positive outlook shared by the Board and leadership team. Whether by returning cash to shareholders, achieving a more efficient capital structure or investing in growth opportunities, we remain focused on driving shareholder value."

The special dividend and dividend increase confirm my opinion written about in, "Mass Retailers Like Wal-Mart Put A Damper On Earnings At Scotts Miracle-Gro", that the company is conceding that limited long-term growth prospects exist for the firm and those prospects are likely to stay that way for the foreseeable future. While the share buyback would be accretive to earnings per share over time if executed, this action in my opinion is trying to make the idea of no-growth more palatable to shareholders.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.