Peet (ASX:PPC) Is Increasing Its Dividend To A$0.05

The board of Peet Limited (ASX:PPC) has announced that it will be paying its dividend of A$0.05 on the 19th of September, an increased payment from last year's comparable dividend. This will take the annual payment to 4.4% of the stock price, which is above what most companies in the industry pay.

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Peet's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Peet's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 31.6% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 48% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Peet

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of A$0.0117 in 2015 to the most recent total annual payment of A$0.0775. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Peet has been growing its earnings per share at 32% a year over the past five years. Peet is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Peet Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Peet is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Peet that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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