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PriceSmart, Inc. (NASDAQ:PSMT) will increase its dividend from last year's comparable payment on the 28th of February to $0.63. This takes the annual payment to 1.2% of the current stock price, which is about average for the industry.
View our latest analysis for PriceSmart
PriceSmart's Projected Earnings Seem Likely To Cover Future Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, PriceSmart was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.
If the trend of the last few years continues, EPS will grow by 12.2% over the next 12 months. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.
PriceSmart Has A Solid Track Record
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.70 in 2015, and the most recent fiscal year payment was $1.16. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that PriceSmart has been growing its earnings per share at 12% a year over the past five years. PriceSmart definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
Overall, it's great to see the dividend being raised and that it is still in a sustainable range. On the plus side, the dividend looks sustainable by most measures but it is let down by the lack of cash flows. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for PriceSmart that you should be aware of before investing. 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.