Pets at Home Group (LON:PETS) Has Affirmed Its Dividend Of £0.045

Pets at Home Group Plc's (LON:PETS) investors are due to receive a payment of £0.045 per share on 12th of January. This makes the dividend yield 4.0%, which will augment investor returns quite nicely.

Check out our latest analysis for Pets at Home Group

Pets at Home Group's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Pets at Home Group's dividend made up quite a large proportion of earnings but only 40% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 65.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.

Pets at Home Group Is Still Building Its Track Record

Pets at Home Group's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2014, the annual payment back then was £0.036, compared to the most recent full-year payment of £0.128. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Pets at Home Group 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.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Pets at Home Group has seen EPS rising for the last five years, at 19% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

We Really Like Pets at Home Group's Dividend

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Pets at Home Group that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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