PetMed Express, Inc. (NASDAQ:PETS) stock is about to trade ex-dividend in 4 days. You will need to purchase shares before the 29th of January to receive the dividend, which will be paid on the 12th of February.
PetMed Express's next dividend payment will be US$0.28 per share. Last year, in total, the company distributed US$1.12 to shareholders. Based on the last year's worth of payments, PetMed Express stock has a trailing yield of around 3.6% on the current share price of $30.87. If you buy this business for its dividend, you should have an idea of whether PetMed Express's dividend is reliable and sustainable. So we need to investigate whether PetMed Express can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PetMed Express is paying out an acceptable 72% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether PetMed Express generated enough free cash flow to afford its dividend. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see PetMed Express's earnings per share have risen 12% per annum over the last five years. PetMed Express is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PetMed Express has delivered an average of 11% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid PetMed Express? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see PetMed Express's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 72% and 61% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of PetMed Express's dividend merits.
Ever wonder what the future holds for PetMed Express? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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