PetMed Express, Inc.'s (NASDAQ:PETS) investors are due to receive a payment of $0.30 per share on 19th of August. This means the annual payment is 5.5% of the current stock price, which is above the average for the industry.
See our latest analysis for PetMed Express
PetMed Express Is Paying Out More Than It Is Earning
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
The next 12 months is set to see EPS grow by 8.1%. If the dividend continues on its recent course, the payout ratio in 12 months could be 126%, which is a bit high and could start applying pressure to the balance sheet.
PetMed Express Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the annual payment back then was $0.50, compared to the most recent full-year payment of $1.20. This means that it has been growing its distributions at 9.1% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Dividend Growth May Be Hard To Come By
Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that PetMed Express' earnings per share has fallen at approximately 6.0% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
PetMed Express' Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about PetMed Express' payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for PetMed Express 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.
About NasdaqGS:PETS
Flawless balance sheet and slightly overvalued.
