This article is about J. M. Smucker Co. (NYSE:SJM) and why it's a total return growth company that is being reviewed by The Good Business Portfolio. J. M. Smucker Co. is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. I was surprised to see the number of brands and product made and distributed by the company, please see the graphic below for the brands. SJI is growing its business will new and enhanced products which should allow it to continue its revenue and earnings growth going forward. Fundamentals of J. M. Smucker Co. will be looked at in the following topics, The Good Business Portfolio Guidelines, Total Return And Yearly Dividend, Last Quarter's Earnings, Company Business Overview, and Takeaways And Recent Portfolio Changes.
Good Business Portfolio Guidelines.
J. M. Smucker Co. passes 11 of 11 Good Business Portfolio Guidelines. These guidelines are only used to filter companies to be considered in the portfolio. For a complete set of the guidelines, please see my article "The Good Business Portfolio: Update To Guidelines and July 2016 Performance Review". These guidelines provide me with a balanced portfolio of income, defensive, momentum, total return, and growing companies that keeps me ahead of the Dow average.
J. M. Smucker Co. is a large-cap company with a capitalization of $17.3 Billion. J. M. Smucker Co. cash flow of $1.1 Billion for the year easily pays the average dividend and leaves some cash left over to increase its product base and continue the company's growth. One of the companies in The Good Business Portfolio is Kraft Heinz Co. (NASDAQ:KHC) which I got as a spin off from another company and is 0.9% of the portfolio. Even with KHC large capitalization size of $109 Billion, J. M. Smucker Co. is not to be feared by Kraft because of J. M. Smucker Co. diverse product mix.
J. M. Smucker Co. has a dividend yield of 1.95% and its dividend has been increased for 10 of the last ten years easily meeting my guideline for dividend growth. The average payout ratio of the dividend is fair at 48% over 5 years. The dividend is above average for the market. J. M. Smucker Co. is therefore not a dividend growth income investment, but total beat by 39% above the DOW average over the last 43 months making J. M. Smucker Co. a great total return company.
J. M. Smucker Co. last yearly cash flow was at $1.1 Billion which leaves J. M. Smucker Co. enough of cash, allowing it to pay its average dividend and have cash left over for its continued business development. The average dividend payout ratio over the last 5 years is 43%, which is fair and allows J. M. Smucker Co. to invest in growing the business and dividends in the future.
I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.1% of the portfolio as income and I need 1.9% more for a yearly distribution of 5%. J. M. Smucker Co. has a three-year CAGR of 10% easily meeting my requirement. Looking back five years $10,000 invested five years ago would now be worth over $22,200 today (from S&P IQ). This makes J. M. Smucker Co. a great investment for the total return investor while you also get a average growing dividend.
J. M. Smucker Co. S&P Capital IQ rating is four star or buy with a target price of $161. J. M. Smucker Co. is then below fair price at present with a 6% increase to go to hit the target. J. M. Smucker Co. PE is bit high right now at 21 for their projected 2017 earnings but is average for this company.
Total Return And Yearly Dividend
The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio, the total return guideline was just added to my list of guidelines. J. M. Smucker Co. easily beat the total return in my 43.0 month test compared to the Dow average. I chose the 43.0 month test period (starting January 1, 2013 and ending to date) because it includes the great year of 2013, and other years that had fair and bad performance. Modeling the Dow average is not an objective of the portfolio but just happened by using the 11 guidelines as a filter for company selection. The great total return and average dividend makes J. M. Smucker Co. a choice for the total return growth investor. The dividend has been increased for 10 of the last ten years. DOW's 43.0 month total return baseline is 40.67%. The total return during the test period for J. M. Smucker Co. is well above the DOW average at 79.65% beating the DOW baseline by 38.98%. In 2013 a good year for the market J. M. Smucker Co. missed the DOW gain of 27% in total return at 15.51% total return. YTD total return is 25.33% well above the DOW average of 6% YTD. Looking at these data points J. M. Smucker Co. pretty much misses the DOW average in good years and beats the DOW average in bad markets, so it's a defensive company.
Dow Baseline 40.67%
43.0Month total return
Difference from DOW baseline
Yearly Dividend percentage
J. M. Smucker Co.
Last Quarter's Earnings
For the last quarter on June 9, 2016 J. M. Smucker Co. reported earnings that beat strongly expected earnings at $1.44 compared to last year at $0.98 and expected at $ 1.20. Revenue was higher at $1.81 Billion up from last year by 24.8% year over year that beat estimated revenue by $70. Million. This was a great report showing the increasing earnings from the same quarter of 2015. This large jump was mainly from the purchase of the Big Heart Pet Brands. Earnings for the next quarter will be out August 23 and is expected to be $1.75 compared to last year at $1.32. The expectation going forward is more growth.
The J. M. Smucker Company is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. The Company's segments include U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Foodservice. One of my guidelines is that the dividend should have increase in 7 of the last ten years, SJI has grown the dividend in each of the last ten years and has a annual dividend growth rate of 9% average over the last 5 years. This makes SJI a fair dividend growth income company. The company is also stockholder friendly with it using its strong cash flow of $1.26 Billion to reduce debt by $750 Million and return $750 Million to the stockholders via buybacks and dividends. The coffee business is growing very strongly with revenue up over 18% or $646 Million for the year. I would buy J. M. Smucker Co. when I have an open slot in the portfolio, its growth is almost assured as the population grows and product distribution increases.
Takeaways and Recent Portfolio Changes
J. M. Smucker Co. is a great investment for the total return growth investor with its annual dividend growth rate (DGR) of about 10% and well above average total return compared to the DOW average over my test period and other periods. J. M. Smucker Co. will definitely be considered for The Good Business Portfolio when an open slot occurs because of its excellent total return with the plus of an average dividend. The Good Business Portfolio try's to use all kinds of investing and not just use one style, so SJI is a candidate for the total return growth group.
Sold some CAB covered calls, sold August $55's. If the premium gets to 20% of the sold premium price, I will buy them back with the hope that CAB goes up so I can sell the calls again in the same month for a Double. On August 1, 2016 I bought to cover (BTC) the calls I sold for a $1.50/share gain. Now if CAB goes up I can sell the calls in the same month for a double.
Sold some covered calls on Harley Davidson (NYSE:HOG), sold August 50's. If the premium gets to 20% of the sold premium price, I will buy them back with the hope that HOG goes up so I can sell the calls again in the same month for a Double. The HOG price is presently above the strike price and I will move the calls up and out if this is true at close to expiration date.
The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. Below are the four top positions in The Good Business Portfolio. Johnson and Johnson (NYSE:JNJ) is 8.7% of the portfolio, Altria Group Inc. (NYSE:MO) is 8.0% of the portfolio, Home Depot (NYSE:HD) is 8.0% of portfolio, Boeing (NYSE:BA) is 7.8% of the Portfolio, therefore MO, JNJ and HD are now in trim position with Boeing getting close.
Boeing is going to be pressed to 10% of the portfolio because of it being cash positive on individual 787 plane costs, announced in the 2015 fourth quarter earnings call. For BA from the second 2016 earnings call deferred costs increased $33 Million a small amount and I project positive cash flow on the 787 program in the third quarter of possibly $100 Million.
JNJ will be pressed to 9% of the portfolio because it's so defensive in this post Brexit world.
For the total Good Business Portfolio please see my recent article on Good Business Portfolio: 2016 first-quarter earnings and performance for the complete portfolio list and performance. Become a real time follower and you will get each quarters performance after the earnings season is over.
I have written individual articles on CAB, JNJ, EOS, GE, IR, MO, BA, AA, Omega Health Investors and HD that are in The Good Business Portfolio and other companies being evaluated by the portfolio. If you have an interest please look for them in my list of previous articles.
Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.
Disclosure: I am/we are long BA, JNJ, HD, MO, EOS, CAB, HOG, DIS, KHC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.