Why You Might Be Interested In PriceSmart, Inc. (NASDAQ:PSMT) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see PriceSmart, Inc. (NASDAQ:PSMT) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase PriceSmart's shares before the 17th of August in order to receive the dividend, which the company will pay on the 31st of August.
The company's next dividend payment will be US$0.70 per share, and in the last 12 months, the company paid a total of US$1.40 per share. Last year's total dividend payments show that PriceSmart has a trailing yield of 0.8% on the current share price of US$177.93. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see PriceSmart paying out a modest 26% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 56% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that PriceSmart's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
See our latest analysis for PriceSmart
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, PriceSmart's earnings per share have been growing at 15% a year for the past five years. PriceSmart is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some 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. In the last 10 years, PriceSmart has lifted its dividend by approximately 7.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is PriceSmart worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, PriceSmart paid out less than half its earnings and a bit over half its free cash flow. PriceSmart looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while PriceSmart has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 1 warning sign for PriceSmart you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.