Contrarian Value Ideas

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Scotts Miracle-Gro - >>> 3 Beaten-Down Dividend Stocks to Buy Right Now


These dividend stocks appear to be poised to bounce back.


Motley Fool

by Keith Speights

8-23-21


https://www.fool.com/investing/2021/08/23/3-beaten-down-dividend-stocks-to-buy-right-now/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article



A cannabis supplier facing temporary headwinds

Scotts Miracle-Gro (NYSE:SMG) has been a household name for decades thanks to its consumer lawn and garden products. In recent years, though, the company has also positioned itself as the leading supplier of hydroponics products to the cannabis industry. It offers a reliable dividend that currently yields 1.7%.

The stock is nearly 40% below its high from a few months ago. CEO Jim Hagedorn explained why in Scotts' second-quarter conference call earlier this month, stating that the company was "finally at the inflection point everyone knew was coming."

Hagedorn acknowledged that Scotts faces more challenging year-over-year comparisons. The company's consumer and cannabis businesses soared in 2020 due to the COVID-19 pandemic. However, consumers are now returning to their normal routines.

In addition, Scotts has encountered other headwinds. Hagedorn blamed adverse weather conditions for constraining the company's growth. He noted that snow in some key markets on Mother's Day weekend, which is typically the biggest weekend of the gardening season, hurt sales. Much of the Midwest and the northeast U.S. experienced record cold on Memorial Day. Heat and drought out west negatively affected Scotts' business as well.

The company's margins have also been pressured due to rising commodity prices. Scotts has been affected by higher prices for urea, diesel, and resin. Grass seed prices have also soared.

There's good news, though: These should be temporary issues. Scotts will move past the difficult year-over-year comparisons. The weather won't always be bad. Scotts will be able to pass on higher commodity prices by increasing its own pricing.

Even better, Scotts' growth prospects remain very good. The U.S. cannabis market continues to expand. It's possible that federal cannabis reform could provide an even greater boost to the cannabis industry. Like Brookfield Renewable, Scotts is a beaten-down dividend stock that isn't likely to remain beaten down for too much longer.

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