PetMed Express (NASDAQ:PETS) Is Increasing Its Dividend To US$0.30

PetMed Express, Inc. (NASDAQ:PETS) will increase its dividend on the 13th of August to US$0.30. This will take the annual payment to 3.8% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for PetMed Express

PetMed Express' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, PetMed Express' dividend made up quite a large proportion of earnings but only 50% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is set to grow by 1.8% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 92%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

PetMed Express Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2011, the first annual payment was US$0.50, compared to the most recent full-year payment of US$1.20. This means that it has been growing its distributions at 9.1% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

PetMed Express Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. PetMed Express has impressed us by growing EPS at 5.0% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On PetMed Express' Dividend

In summary, while it's always good to see the dividend being raised, we don't think PetMed Express' payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for PetMed Express that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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