Pet Valu Holdings Ltd. (TSE:PET) Pays A CA$0.12 Dividend In Just Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Pet Valu Holdings Ltd. (TSE:PET) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Meaning, you will need to purchase Pet Valu Holdings' shares before the 31st of March to receive the dividend, which will be paid on the 15th of April.

The company's next dividend payment will be CA$0.12 per share, and in the last 12 months, the company paid a total of CA$0.44 per share. Based on the last year's worth of payments, Pet Valu Holdings has a trailing yield of 1.7% on the current stock price of CA$25.51. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Pet Valu Holdings has been able to grow its dividends, or if the dividend might be cut.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Pet Valu Holdings paying out a modest 36% of its earnings. A useful secondary check can be to evaluate whether Pet Valu Holdings generated enough free cash flow to afford its dividend. The good news is it paid out just 23% of its free cash flow in the last year.

It's positive to see that Pet Valu Holdings'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.

Check out our latest analysis for Pet Valu Holdings

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Pet Valu Holdings's earnings per share have been shrinking at 3.1% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last three years, Pet Valu Holdings has lifted its dividend by approximately 122% a year on average.

To Sum It Up

From a dividend perspective, should investors buy or avoid Pet Valu Holdings? Pet Valu Holdings has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in Pet Valu Holdings for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Pet Valu Holdings that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.