PriceSmart (NASDAQ:PSMT) Is Paying Out A Larger Dividend Than Last Year

PriceSmart, Inc. (NASDAQ:PSMT) will increase its dividend from last year's comparable payment on the 31st of August to $0.46. This takes the annual payment to 1.3% of the current stock price, which is about average for the industry.

View our latest analysis for PriceSmart

PriceSmart's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, PriceSmart was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 12.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

PriceSmart Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $0.60, compared to the most recent full-year payment of $0.92. This works out to be a compound annual growth rate (CAGR) of approximately 4.4% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

PriceSmart May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, PriceSmart has only grown its earnings per share at 3.5% per annum over the past five years. While growth may be thin on the ground, PriceSmart could always pay out a higher proportion of earnings to increase shareholder returns.

PriceSmart Looks Like A Great Dividend Stock

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. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for PriceSmart that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of 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.