PriceSmart's (NASDAQ:PSMT) Shareholders Will Receive A Bigger Dividend Than Last Year
PriceSmart, Inc. (NASDAQ:PSMT) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of August to $0.43. The payment will take the dividend yield to 1.3%, which is in line with the average for the industry.
View our latest analysis for PriceSmart
PriceSmart's Earnings Easily Cover the Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. PriceSmart is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Over the next year, EPS is forecast to expand by 10.1%. If the dividend continues on this path, the payout ratio could be 24% by next year, which we think can be pretty sustainable going forward.
PriceSmart Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.60 in 2012 to the most recent total annual payment of $0.86. This works out to be a compound annual growth rate (CAGR) of approximately 3.7% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Although it's important to note that PriceSmart's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, PriceSmart could always pay out a higher proportion of earnings to increase shareholder returns.
In Summary
Overall, we always like to see the dividend being raised, but we don't think PriceSmart will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for PriceSmart that investors should know about before committing capital to this stock. 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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