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Dividend Aristocrats In Focus: The J.M. Smucker Company

Updated on March 25th, 2024 by Bob Ciura

At Sure Dividend, we often talk about the merits of the Dividend Aristocrats. We believe this exclusive group of stocks broadly has strong brands, consistent profits even during recessions, and durable competitive advantages. These qualities allow the Dividend Aristocrats to raise their dividends every year, regardless of the state of the economy.

Of the ~505 stocks comprising the S&P 500 Index, just 68 qualify as Dividend Aristocrats. You can download a copy of the full list of all 68 Dividend Aristocrats, complete with metrics like dividend yields and P/E ratios, by clicking on the link below:


Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.

Each year, we individually review all the Dividend Aristocrats. The next in the series is The J.M. Smucker Company (SJM).

J.M. Smucker has a long history of dividend growth, having raised its dividend for 26 years in a row. This article will discuss the major factors for J.M. Smucker’s long dividend history and its outlook.

Business Overview

J.M. Smucker has been in business for more than 100 years. It started out all the way back in the 19th century when the company was founded in 1897 at a small cider mill in Orrville, Ohio.

Today, J.M. Smucker has a market capitalization of $13 billion and generates annual revenue of more than $8 billion. J.M. Smucker is a packaged food and beverages company that owns well-known brands such as Smucker’s, Jif, Folgers, and so on. The company also owns a pet food business with brands such as Milk Bone and 9Lives.

Source: Investor Presentation

In late February, Smucker’s reported (2/27/24) results for the third quarter of fiscal 2024, which ends on April 30th, 2024. Currency-neutral organic sales grew 6% over the prior year’s quarter, mostly thanks to strong sales of cat food as well as material price hikes. The solid volumes amid strong price hikes are testaments to the strength of the brands of the company.

Adjusted earnings-per-share grew 12%, from $2.21 to $2.48, and exceeded the analysts’ estimates by $0.21. Smucker’s slightly improved its guidance for fiscal 2024. It now expects comparable sales growth of 8.75% (vs. 8.5%-9.0% previously) and narrowed its guidance for adjusted earnings-per-share from $9.25-$9.65 to $9.45-$9.65.

Growth Prospects

J.M. Smucker’s industry isn’t growing fast, as demand for food is not growing too much based on economic development. Instead, food consumption is generally growing a little less than economic output, as it is mostly tied to population growth. Still, J.M. Smucker can generate growth in different ways, despite being active in a lower-growth industry.

Acquisitions have been a major source of business growth for the company in the past.

The company regularly acquires smaller companies that are then benefitting from J.M. Smucker’s sales network. On top of that, the company is able to capture synergies when it comes to administration and other areas, which drives the profitability of the companies J.M. Smucker acquires.

On November 7th, 2023, Smucker’s completed the acquisition of Hostess Brands (TWNK) in a cash-and-stock deal with value of $5.6 billion, which includes debt. Hostess Brands has many sweet baked goods brands, which will expand the product portfolio of Smucker’s and create synergies. However, the deal value is about 13.2 times EBITDA of Hostess Brands, after the expected synergies have been taken into account.

In the long run, we believe that current margin headwinds from rising commodity prices will wane, or that the company will fully pass on those rising costs to consumers. Some organic business growth, some M&A, and the impact of share repurchases should allow J.M. Smucker to grow its earnings-per-share by around 4% a year in the long run, we believe.

Competitive Advantages & Recession Performance

J.M. Smucker is not the largest player in the food and beverages space by far, but it is among the leading players in the segments it is active in, such as coffee sold at retailers, peanut butter and other breakfast spreads, pet food, and so on.

J.M. Smucker’s brands are well-known and liked among consumers, thus it is not very likely that new market entrants will disrupt the company’s core business.

A major advantage for J.M. Smucker is its outstanding recession-resilience. Consumers do cut back on their spending during economic downturns, but they typically do so in discretionary areas — autos, electronics, apparel, and so on. This is why J.M. Smucker and most of its peers have outperformed during recessions in the past.

The company’s earnings-per-share performance during the Great Recession is below:

We see that J.M. Smucker did not only manage to grow its earnings-per-share during every year of the Great Recession, but it even generated a very compelling average growth rate of 15% in that time frame — barely any other company has managed to perform so well during the crisis.

The same held true during the pandemic, as J.M. Smucker also managed to grow its earnings-per-share by 14% in 2020 when the economy was suffering from lockdowns and other COVID measures.

J.M. Smucker’s recession resilience is one of its biggest advantages and makes it a suitable choice from a risk perspective.

Valuation & Expected Returns

Using the current share price of ~$123 and the midpoint for earnings guidance of $8.05 for the year, J.M. Smucker trades for a price-to-earnings ratio of 15.3. Given the company’s strong recession performance, but not overly strong growth outlook, we feel that a target price-to-earnings ratio of 16 is appropriate. This is also roughly in line with the company’s 10-year historical average.

As a result, J.M. Smucker is slightly undervalued. An expanding P/E multiple could add 0.9% to SJM’s annual returns over the next five years. Aside from changes in the price-to-earnings multiple, future returns will be driven by earnings growth and dividends.

We expect 4% annual earnings growth over the next five years. In addition, J.M. Smucker stock is currently trading with a dividend yield of 3.4%.

Total returns could consist of the following:

J.M. Smucker is thus expected to return around 8.3% per year through 2029. This is a solid expected rate of return, but not high enough to warrant a buy recommendation.

Final Thoughts

J.M. Smucker is a quality company with a strong dividend growth track record and an outstanding ability to withstand recessions.

Shares are trading slightly below our fair value estimate right now, leading to high single-digit expected total returns. The current dividend yield is very solid and looks safe, but due to expected total returns being only in the 8%-9% range over the coming years, we rate J.M. Smucker a hold right now.

Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:

If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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