Thursday, January 27, 2011

J.M. Smucker Company Stock Analysis

The JM Smucker Company (SJM) has paid dividends now for over 10 years.  They did extremely well during the great recession as they had the acquisition of Folgers and also they are a staple in everyone's homes with their vast array of product offerings - I mean come on, I think I eat peanutbutter everyday and my mom loves their coffee : ) 

To start the analysis, I would like to look at their price: as of January 27th 2011 (Before the market opens) they are trading at $62.34. Their 52 week high is $66.28, giving a chance of a 6% upside on the pricing giving its most recent high. Their low is $53.27 over the prior 52 weeks.  It is more towards their 52 week high at this point, which I would like to see it a dollar or two lower.  

Price to Earnings Ratio: SJM has a current 14.74 P/E ratio, below the S&P average and according to Morning star is below the 16.2 P/E for the industry average. Therefore, SJM's stock is a cheaper option according to its earnings and is currently undervalued against the average of both the industry and S&P index.

Dividend Yield: Let us take a look at Smucker's dividend yield.  Their current dividend yield when trading at $62.34 is 2.57%.  2.57% is still much higher than the average of the S&P 500 index, and they have had consecutive raises in their dividend policy.  Also, their dividend yield growth rate currently stands at 9.61% since their first issuance back in November of 2000.  Last year's increase was over 13%, from 2008 to 2009 (Excluding their special dividend) was 8.7%, and from 2007 to 2008 was about 7%.  

Payout Ratio: Their dividend is $1.60 per year and their EPS is $4.23.  Therefore, 1.6/4.23 = 37.8%, actual a low ratio.  Compared to their earnings, they are retaining over 60% of those for their business, building up their cash supply for possible future acquisitions I am sure (One allows me to think that, because of the big Folgers deal they pulled off) and this retaining of earnings could be used for further, future dividend increases.  This shows me that they have room to provide increases and consistently pay that dividend.  

Conclusion: From what we all experienced over these last 3 years from the "great recession", one can bet that Smucker's was a great pick as most consumers would buy peanutbutter (Jif) for cheaper meals and make their own coffee at home (Folgers) than going to a cafe and paying a few dollars for a cup.  As it is a great staple for your cupboards and countertops, I believe it is a great staple for your investment portfolio.  I currently do not have a position in SJM, but am highly considering starting a position, as over time with a DRIP in place, this investment could pay off mightily.  

I recommend doing your own due diligence before purchasing any investment, however, and I do not make a recommendation to anyone - I simply describe how I feel about the topic at hand.  Thanks for reading!

-Lanny B.

Disclosure: I do not hold nor recommend anything. This is actual data, analysis, however I base no investor recommendation. However, I personally would add/start a position on this firm, however my direction is different from anyone else's. Thank you for your understanding.

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