The J.M. Smucker Company (SJM), Dunkin Brands Group Inc (DNKN): Four Reasons to Buy this Coffee Company

To offset the slowdown, J.M. Smucker will launch 100 new products in fiscal year 2014. Besides that, its marketing spending will go up by 10%, as J.M. Smucker is sponsoring the 2014 and 2016 Olympics. Altogether these factors point towards higher sales, which coupled with falling input costs, point towards higher earnings.

Investors’ delight

At the current price, shares of J.M. Smucker yield 2.06% with a modest payout ratio of 42%. It sports a dividend coverage ratio of 3.83 with cash and cash equivalents of $256.44 million, suggesting that J.M. Smucker can comfortably sustain its dividends. Furthermore, its operating cash flows have grown by 260.4% while its dividends have been hiked by 62.5% over the past five years. This adds a safety cushion for its existing payouts, and leaves room for a dividend hike of around 1.5 times.

By the end of the third quarter, the company had around 108.5 million shares outstanding with an authorization to buy back 6.9 million shares. And by the end of the fourth quarter, its shares outstanding totaled 107.192 million shares. This means that the company is yet to repurchase around 5.59 million of its shares, which accounts for 5.21% of its total shares outstanding. These pending share repurchases should boost its current yield to 2.17%.

Conclusion

Although shares of J.M Smucker appear to be fairly valued, Gabelli has recently upgraded the company to a buy rating. Analysts at the firm believe that falling input costs, coupled with ripe growth prospects, should yield higher earnings in the coming quarter.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters (NASDAQ:GMCR). Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article 4 Reasons to Buy this Coffee Company originally appeared on Fool.com is written by Piyush Arora.

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