Are You Looking for a High-Growth Dividend Stock? Scotts Miracle-Gro (SMG) Could Be a Great Choice

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Scotts Miracle-Gro in Focus

Scotts Miracle-Gro (SMG) is headquartered in Marysville, and is in the Basic Materials sector. The stock has seen a price change of 72.14% since the start of the year. The lawn and garden products company is paying out a dividend of $0.58 per share at the moment, with a dividend yield of 2.19% compared to the Fertilizers industry's yield of 1.14% and the S&P 500's yield of 1.79%.

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 5.37%. 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. Right now, Scotts's payout ratio is 52%, which means it paid out 52% of its trailing 12-month EPS as dividend.

SMG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.02 per share, representing a year-over-year earnings growth rate of 12.30%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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 is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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