Why Scotts Miracle-Gro (SMG) is a Top Dividend Stock for Your Portfolio

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Scotts Miracle-Gro in Focus

Based in Marysville, Scotts Miracle-Gro (SMG) is in the Basic Materials sector, and so far this year, shares have seen a price change of 7.08%. The lawn and garden products company is paying out a dividend of $0.58 per share at the moment, with a dividend yield of 2.04% compared to the Fertilizers industry's yield of 1.2% and the S&P 500's yield of 1.88%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.32 is up 4% from last year. Scotts Miracle-Gro has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.44%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Scotts's current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SMG for this fiscal year. The Zacks Consensus Estimate for 2020 is $5.11 per share, representing a year-over-year earnings growth rate of 14.32%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SMG presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

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