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?

2 comments:

  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.

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    Replies
    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!

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