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The board of Pet Valu Holdings Ltd. (TSE:PET) has announced that it will pay a dividend of CA$0.12 per share on the 16th of June. Including this payment, the dividend yield on the stock will be 1.6%, which is a modest boost for shareholders' returns.
Pet Valu Holdings' Payment Could Potentially Have Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Pet Valu Holdings was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 53.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.
See our latest analysis for Pet Valu Holdings
Pet Valu Holdings Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The dividend has gone from an annual total of CA$0.04 in 2022 to the most recent total annual payment of CA$0.48. This works out to be a compound annual growth rate (CAGR) of approximately 129% a year over that time. Pet Valu Holdings has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
Dividend Growth Is Doubtful
The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past three years, it looks as though Pet Valu Holdings' EPS has declined at around 6.1% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
Our Thoughts On Pet Valu Holdings' Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Pet Valu Holdings is a great stock to add to your portfolio if income is your focus.