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The board of The Scotts Miracle-Gro Company (NYSE:SMG) has announced that it will pay a dividend on the 7th of March, with investors receiving $0.66 per share. This means the annual payment is 3.8% of the current stock price, which is above the average for the industry.
Check out our latest analysis for Scotts Miracle-Gro
Scotts Miracle-Gro's Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate Scotts Miracle-Gro's Could Struggle to Maintain Dividend Payments In The Future
Scotts Miracle-Gro's Future Dividends May Potentially Be At Risk
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. While Scotts Miracle-Gro is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
The next 12 months is set to see EPS grow by 146.7%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.
Scotts Miracle-Gro Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from $1.75 total annually to $2.64. This means that it has been growing its distributions at 4.2% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Scotts Miracle-Gro's EPS has fallen by approximately 51% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
Our Thoughts On Scotts Miracle-Gro's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.