PriceSmart (NASDAQ:PSMT) Has Announced That It Will Be Increasing Its Dividend To $0.46

The board of PriceSmart, Inc. (NASDAQ:PSMT) has announced that it will be paying its dividend of $0.46 on the 28th of February, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 1.3%, which is in line with the average for the industry.

View our latest analysis for PriceSmart

PriceSmart's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, PriceSmart was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 12.9% over the next year. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

PriceSmart Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.60 in 2013, and the most recent fiscal year payment was $0.92. This implies that the company grew its distributions at a yearly rate of about 4.4% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 3.5% per year. If PriceSmart is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

We Really Like PriceSmart's Dividend

Overall, a dividend increase is always good, and we think that PriceSmart is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for PriceSmart 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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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.