PriceSmart's (NASDAQ:PSMT) Dividend Will Be Increased To US$0.43
PriceSmart, Inc. (NASDAQ:PSMT) has announced that it will be increasing its dividend on the 31st of August to US$0.43. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.
Check out our latest analysis for PriceSmart
PriceSmart's Dividend Is Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, PriceSmart's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 11.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.
PriceSmart 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. Since 2012, the first annual payment was US$0.60, compared to the most recent full-year payment of US$0.86. This implies that the company grew its distributions at a yearly rate of about 3.7% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
Dividend Growth May Be Hard To Achieve
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings per share has been crawling upwards at 2.4% per year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
Our Thoughts On PriceSmart's Dividend
Overall, we always like to see the dividend being raised, but we don't think PriceSmart will make a great income stock. While PriceSmart is earning enough to cover the payments, the cash flows are lacking. We don't think PriceSmart is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for PriceSmart that investors need to be conscious of moving forward. Is PriceSmart not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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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