Patterson Companies (NASDAQ:PDCO) Will Pay A Dividend Of $0.26
Patterson Companies, Inc. (NASDAQ:PDCO) has announced that it will pay a dividend of $0.26 per share on the 3rd of February. This means the annual payment is 3.8% of the current stock price, which is above the average for the industry.
See our latest analysis for Patterson Companies
Patterson Companies' Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Patterson Companies' earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
Over the next year, EPS is forecast to expand by 13.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.
Patterson Companies Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $0.56 in 2012, and the most recent fiscal year payment was $1.04. This means that it has been growing its distributions at 6.4% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Patterson Companies May Find It Hard To Grow The Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, Patterson Companies has only grown its earnings per share at 3.7% per annum over the past five years. Growth of 3.7% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Patterson Companies' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Patterson Companies is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Patterson Companies (of which 2 are significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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