Scotts Miracle-Gro (NYSE:SMG) Has Affirmed Its Dividend Of $0.66

The Scotts Miracle-Gro Company's (NYSE:SMG) investors are due to receive a payment of $0.66 per share on 6th of June. The dividend yield will be 4.9% based on this payment which is still above the industry average.

We've discovered 2 warning signs about Scotts Miracle-Gro. View them for free.

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 138.6%. 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.

View our latest analysis for Scotts Miracle-Gro

Scotts Miracle-Gro Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was $1.75, compared to the most recent full-year payment of $2.64. This means that it has been growing its distributions at 4.2% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 51% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Scotts Miracle-Gro (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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