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Pets at Home Group Plc (LON:PETS) will pay a dividend of £0.045 on the 12th of January. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.
Check out our latest analysis for Pets at Home Group
Pets at Home Group's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 75% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Over the next year, EPS is forecast to expand by 65.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.
Pets at Home Group Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. Since 2014, the dividend has gone from £0.036 total annually to £0.128. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Pets at Home Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Pets at Home Group has impressed us by growing EPS at 19% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
We Really Like Pets at Home Group's Dividend
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Pets at Home Group that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.