Monday, January 28, 2013

Recent Buy: Scotts Miracle-Gro

Despite my view that the market is due for a pullback, I'm always on the hunt for stocks I believe to be good values. Today, I bought 75 shares of Scotts Miracle-Gro (SMG) for $44.50 or $3,337.50. My entry yield is 2.9% and will add $97.50 of annual dividend income to my portfolio.

Scotts Miracle-Gro makes what you would expect - lawn and garden care products. I've used their products and can say they work. The company is based in Ohio, which fits my thesis that midwest-based companies will enjoy a competitive advantage with the shale boom bringing in low-cost energy.

SMG trades at 14.5x 2014 EPS, has a strong balance sheet, and has increased the dividend at a 20% CAGR in the last 5 years - with the most recent increase being 8.3%.

That's it! Simple thoughts from my simple mind, but hopefully a great investment for years to come. Since I'm not making a huge bet here, there's no need to dig further. I hope to spend more time analyzing the stocks I buy, which should help me to concentrate my bets - but that's when I simplify my life, not today.

What do you think? Is SMG a BUY today? Am I missing anything that could be a downside risk?


  1. I like the company and its products. The downsides that I see are that the P/E is a little higher than I like in my purchases. The fourth quarter of 2005 it cut its dividend by 50%. There was no dividend growth from the dividend cut till 2010. The payout ratio might be a little too high. The two places that I checked showed two different amounts. It's either 62% or 72%. Not sure which one is right, but if the 72% is, that's a little too high for my tastes.

    I like the stock as a long term holding, but at a little lower price. This stock is on my watch list.

    1. Chad,
      Thanks for stopping by. Yes, it looks like the dividend was cut in half for one quarter in 2005. The $8 special dividend shortly after (Q1 2007) and strong increases since make me feel that the cut was a fluke and won't happen again.

      The payout ratio is high on TTM earnings, but with a $1.30 annual dividend and $2.60 consensus EPS in the current fiscal year, the payout is a healthy 50%.

      Thanks for the comments and questions!