Last update on 2024-06-27

PetMed Express (PETS) - Dividend Analysis (Final Score: 3/8)

PetMed Express (PETS) dividend analysis reveals a score of 3/8, highlighting a solid dividend yield but inconsistent coverage by earnings and cash flow.

Short Analysis - Dividend Score: 3

We're running PetMed Express (PETS) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of PetMed Express (PETS) scored 3 out of 8 based on an 8-criteria scoring system evaluating dividend policies. PETS has a strong dividend yield higher than its industry average and good dividend coverage by cash flow in recent years. However, the company falls short in stable dividends over 25 years, average payout ratio, consistent dividend growth, and reliable stock repurchases. There have been fluctuations in earnings and profitability, particularly concerning for future dividend stability.

Insights for Value Investors Seeking Stable Income

Considering the dividend analysis, PETS shows some promising signs like a strong dividend yield and improving free cash flow to support dividends. However, its recent earnings decline, inconsistent long-term dividend and buyback history, and not meeting several criteria suggest caution. For investors prioritizing stable and long-term dividend income, PETS might not be the best choice without further inquiry into its future profit potential and strategies to maintain dividends.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the ratio of a company's annual dividend compared to its share price. It is important because it gives investors an idea of the return they might earn through dividends by investing in the stock rather than just relying on the share price appreciation.

PetMed Express (PETS) boasts a dividend yield of 7.9365%, significantly surpassing the industry average of 3.82%. Over the last 20 years, the company's dividend yield has shown some fluctuations, with a noteworthy peak of 14.4144% in 2012. Since 2016, PETS has maintained a higher dividend yield, generally above the industry's average, indicating a robust dividend policy. This trend is advantageous for dividend-seeking investors, especially given the stock's recent lows, and signals a strong capacity and willingness to return value to shareholders through dividends.

Average annual Growth Rate higher than 5% in the last 20 years?

Explain the criterion for PetMed Express (PETS) and why it is important to consider

The Dividend Growth Rate is a measure of how much the dividend payments have increased over a specific period. A continuous and stable growth rate often indicates the company's profitability, robust earnings growth, and commitment to returning value to shareholders. A growth rate higher than 5% is typically considered an indicator of financial health and long-term shareholder value.

Average annual Payout Ratio lower than 65% in the last 20 years?

Explain the criterion for PetMed Express (PETS) and why it is important to consider

The Average Payout Ratio assesses the portion of earnings a company pays shareholders as dividends. Keeping this ratio below 65% indicates a balance between rewarding shareholders and retaining earnings for growth. This balance is crucial for sustained financial health.

Dividends Well Covered by Earnings?

Earnings per share (EPS) measures a company's profit allocated to each outstanding share of common stock, indicating the company’s ability to generate profits.

PetMed Express's EPS has shown growth over the long term, peaking in 2019 at $1.84 before a notable decline in subsequent years, arriving at $0.01 in 2023. This trend indicates a considerable fluctuation in profitability, raising concerns about its capacity to sustain high earnings. Moreso, this volatility could impact its future dividend-paying ability. In general, the 20-year span seems strong, but recent profitability declines pose risks.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicates how well a company can sustain its dividend payments strictly from the free cash flow it generates. It is important because it reflects the company’s ability to return profits to shareholders without having to take on additional debt or dilute equity. Ideally, you want the dividend to be well covered, indicating financial health and sustainability.

The historical data reveals a mixed trend for PetMed Express (PETS) in terms of dividends covered by cash flow. For the most part, since 2011 onwards, dividends relative to free cash flow have shown an improving trend with values over 1, specifically in 2013, 2022, and 2023. For example, in 2022, the dividends covered by cash flow was significantly high at 1.456. This indicates that PETS had sufficient free cash flow to cover its dividend outlay during these years. However, some periods such as before 2011 and certain intermittent years display lower coverage values, which may suggest potential sustainability concerns in those periods. Interestingly, the notably high value in 2013 (2.524) appears to be an outlier. The overall upward trend is a good indicator of financial stability and shows that PETS has become increasingly capable of supporting its dividend payouts through its generated free cash flow.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for PetMed Express (PETS) and why it is important to consider

The stability of dividends over a long term horizon is critical for income-seeking investors. A consistent dividend stream can provide a steady source of income, especially for retired individuals or those looking to supplement their earnings. It signals the financial health and sustainable earnings capability of a company.

Dividends Paid for Over 25 Years?

This criteria assesses whether a company has been making consistent dividend payments over a span of 25 years.

Based on the given data, PetMed Express (PETS) has not been paying dividends for over 25 years. The records indicate that dividends started in 2010 with a per-share value of $0.20. Since then, the company has consistently paid dividends, peaking at $1.20 per share in 2022 before dropping to $0.60 in 2023. While the trend shows an overall positive trajectory in dividend payments, it's important to note that the company's history of less than 25 years of dividends is inadequate for passing this criterion. Nonetheless, the stability and growth since 2010 is commendable, though potential investors looking for long-term dividend consistency may want to consider this limitation.

Reliable Stock Repurchases Over the Past 20 Years?

Stock repurchases, or share buybacks, indicate a company’s confidence in its future profits and ability to return wealth to shareholders. Analyzing such trends over the past 20 years helps gauge reliability and shareholder value enhancement.

Over the past 20 years, PetMed Express's approach to stock repurchases shows mixed reliability. From the data, the number of shares decreased significantly in several periods, such as from 2009 to 2014 and in 2020. Years such as 2009 (23,482,177), 2010 (22,746,433), and especially 2011 to 2013, show effective share reductions from 22,643,000 in 2011 to 20,049,000 in 2013, reflecting substantial buyback activity. This trend is a positive indicator, suggesting the firm's confidence during those years and efforts to return capital to shareholders. However, the (-0.04) average repurchases suggests limited long-term impact, signaling inconsistency. The overall trend appears spotty, reflecting both strong buyback years and periods where share count remained relatively unchanged or even increased modestly. Therefore, PetMed Express's reliability concerning stock repurchases appears moderate. While there were intervals of aggressive buybacks, consistency is a concern.