Why You Might Be Interested In PriceSmart, Inc. (NASDAQ:PSMT) For Its Upcoming Dividend
Readers hoping to buy PriceSmart, Inc. (NASDAQ:PSMT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase PriceSmart's shares before the 14th of August in order to receive the dividend, which the company will pay on the 31st of August.
The company's upcoming dividend is US$0.46 a share, following on from the last 12 months, when the company distributed a total of US$0.92 per share to shareholders. Based on the last year's worth of payments, PriceSmart has a trailing yield of 1.2% on the current stock price of $77.43. If you buy this business for its dividend, you should have an idea of whether PriceSmart's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for PriceSmart
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PriceSmart is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.
It's positive to see that PriceSmart's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see PriceSmart earnings per share are up 4.8% per annum over the last five years. PriceSmart is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, PriceSmart has increased its dividend at approximately 4.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Should investors buy PriceSmart for the upcoming dividend? Earnings per share have been growing moderately, and PriceSmart is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but PriceSmart is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for PriceSmart? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for strong dividend payers, we recommend checking 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.
