Higher Dividends & Share Buybacks From PetsMart (PETM)

PetSmart, Inc. (NASDAQ: PETM) must be doing very well despite the renewed uncertainty out there.  The pet specialty store destination just raised its dividend by 25% to $0.125 per quarter from a prior quarterly payout of $0.10.  The company is also boosting what was already a fairly aggressive share buyback plan.  After looking at a quick glance for projections, investing in Fido and Fifi may have room for even higher payouts down the road.

The company also announced a new $400 million stock buyback plan that expires in January 2012.  The prior $350 million buyback plan was for $350 million and the current $350 million plan had $103 million remaining. Not bad, $247 million spent in a year versus a listed market cap of $3.75 billion.  Add in the new buyback plan at the same rate as the prior buyback plan, and suddenly well over 10% of its float has been eliminated.

The company noted that PetSmart continues to generate cash “well above the amount needed for optimal reinvestment in our business” and said that this shows the stability of its cash flow.

The $0.50 annual rate gives the $31.68 price at the closing bell an implied dividend of 1.5%.  The company ended last quarter with more than $300 million in cash and long-term investments.  Thomson Reuters expects earnings at $1.90 EPS for this fiscal year and $2.18 EPS for the next fiscal year.  If the company chooses to do so, it has a lot of implied room for more dividend hikes down the road.

JON C. OGG

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