Yahoo Finance PriceSmart (NASDAQ:PSMT) Has Announced That It Will Be Increasing Its Dividend To US$0.43
The board of 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 1.1%, which is below the industry average.
View our latest analysis for PriceSmart
PriceSmart's Dividend Is Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. PriceSmart is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Looking forward, earnings per share is forecast to rise by 11.5% over the next year. 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 a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from US$0.60 to US$0.86. This works out to be a compound annual growth rate (CAGR) of approximately 3.7% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
PriceSmart May Find It Hard To Grow The Dividend
Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 2.4% per annum over the last five years, which admittedly is a bit slow. 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, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. 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.
