J.M. Smucker: Cash Flow Machine

03/07/2016 8:00 am EST

Focus: STOCKS

Chloe Jensen

Chief Analyst, Cabot Dividend Investor

We hope to get a buy signal—and begin bargain hunting—soon, but for now, we’re sticking with what’s working. Today, that’s high quality, conservative stocks from defensive industries, asserts Chloe Lutts Jensen, editor of Cabot Dividend Investor.

You probably know J.M. Smucker (SJM) from your very own pantry. The company owns food brands Smucker’s, Jif, Folgers, Crisco, and some of Pillsbury, among others.

The company has grown through large and small acquisitions and is now focusing on faster-growing grocery categories including coffee, natural foods, and pet food.

Since 2008, the company has acquired three major at-home coffee brands—Folgers, Café Bustelo, and Dunkin’ Donuts—giving the company a significant presence in all at-home coffee categories.

And last year, the company acquired Big Heart Pet Brands, which owns some of the most popular pet food and treat brands in the US, including Meow Mix, Milk-Bone, and Kibbles n’ Bits.

The company’s growth-through-acquisitions strategy has contributed to annual profit growth of about 8% per year over the past ten years and analysts expect growth to continue at that pace over the next five years.

Smucker’s is a free cash flow machine; management recently increased their full year outlook for free cash flow from $925 million to $975 million.

For the full year, which ends in April, management is forecasting net sales of $7.8 billion, down from their previous guidance of $7.9 billion.

However, the company is maintaining their EPS guidance of $5.70 to $5.80. And in 2017 and 2018, the company expects 10%-plus growth in earnings.

SJM has raised its dividend for 14 consecutive years, with the increases averaging about 10% over the past five years.

SJM isn’t a cheap stock today, but its high quality means it is rarely on sale. The stock delivers reliable high-single-digit earnings growth and annual dividend growth.

The stock has relatively low volatility (beta of 0.57) and performs especially well when the broad market is weak. We think SJM is appropriate for all investors.

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