Patterson Companies (NASDAQ:PDCO) Is Paying Out A Dividend Of $0.26

Patterson Companies, Inc. (NASDAQ:PDCO) will pay a dividend of $0.26 on the 4th of November. This means the annual payment is 3.9% of the current stock price, which is above the average for the industry.

View our latest analysis for Patterson Companies

Patterson Companies' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Patterson Companies' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 14.6%. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.

Patterson Companies Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from $0.48 total annually to $1.04. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings have grown at around 2.6% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 2.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Patterson Companies' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Patterson Companies' payments, as there could be some issues with sustaining them into the future. While Patterson Companies is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Patterson Companies has 3 warning signs (and 2 which are a bit concerning) we think you should know about. Is Patterson Companies not quite the opportunity you were looking for? Why not check out our selection of top 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.