Why Shoppers Drug Mart Should Raise Its Dividend

Hey Shoppers Drug Mart (SHDMF.PK).

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 be 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) and Tim Hortons (THI).

Comments

[naidle:]

SDM has some of the best management teams in the country. If they decide to keep the distribution it's fair to say they have a reason to do so.

Having said this 1.8% does seem a bit low for a growing company so entrenched in the eye of the CDN consumer.

Jul 24 03:19 PM

[moneygardener:]

To me, not even nudging it up a few pennies is foolish...

Aug 05 08:24 AM