Wednesday, July 22, 2009

Shoppers Drug Mart should increase their dividend

Hey Shoppers Drug Mart (SC)!

You just reported an earnings increase of 7.5% amid one of most difficult Canadian retail operating environments in a long time. How about throwing shareholders a bone and giving them a little boost to the dividend?

The quickly growing Canadian drugstore chain's dividend has been the same 21.5 cents per share since the first quarter of 2008. The company is paying out a modest 33% of earnings and the stock yields 1.8%. Could Shoppers being hoarding cash for a take over of some kind? Either way, I would urge them to continue to raise the dividend on a regular basis, to not only reward current shareholders, but to build themselves a history of strength through dividend growth. A lot of investors, whether looking into the past or the future, like to see regular dividend increases and view the incremental hikes as a sign of stability.

Shoppers has raised their dividend regularly since 2005 and is now at risk of paying out an equivalent amount in 8 straight quarters. This would mean that if they don't raise in November despite recent growth in earnings, Shoppers would essentially pay out the same dividend in 2008 and 2009. What a shame, especially for a firm that I included as part of my future of Canadian dividend growth along with Rogers Communications (RCI.B) and Tim Hortons (THI).


Anonymous said...

The Ontario gov. is going after the "high margins" of pharmacies as it tries to lower the price of drugs. Regulatory changes are coming and could potentially affect the profitability of SC. Maybe SC is more worried about the future than you are.

Anyway, the gov. is targeting the end of Sept. to release its "solution", so we should know relatively soon.

paulmcm said...

I'd held Shoppers for two years,but sold it this spring because of the lack of dividend increases and also my concern of how the recession would affect sales.

MG (moneygardener) said...

I’m really surprised they made the decision to not raise the dividend yet this year. That being said the payout ratio was higher than I expected it to be.

It might seem like a small item to the board but I just think a raise would improve their investor culture and show stability. They sure seem to be investing in large new stores right now.