Pet Industry Dividend Investing
One thing that is almost a certainty during good times and bad is that pet owners will continue to pamper and spend on their furry friends. In fact since 2010 the annual expenditure of pet related products and services has topped $50 billion in the United States alone. It is estimated that over 80 million of us have at least one pet in our household. That’s a big market. Think about all the care that your pet requires on a regular basis from grooming supplies, food and nutrition to toys and veterinary care. Did you know that a lot of the companies that supply these goods and services pay dividends? Let’s take a look at some of the pet industry dividend players.
First up in the retail segment of the pet industry is PetSmart, Inc. (PETM). A retail outlet that doesn’t really need any introduction, after all, who hasn’t walked into one of their retail locations to merely browse, currently yields 1.40% with a very low payout ratio of only 18.0%. This dividend is very safe. PETM has been growing its dividend for the last 5 years but has a very impressive 10 year annualized dividend growth rate of 38.65%. That’s a rocket ship of growth! On a valuation basis PETM is only at a 14.5 PE which is cheap compared to the S&P and is also well below industry peers. PETM, though currently a low yield stock, does offer some impressive potential dividend gains in the future.
Next in the retail space is PetMed Express, Inc. (PETS). PETS does business under the familiar name 1-800-PetMeds that supplies prescription and non-prescription pet medications, health products and more in the United States. PETS currently offers and very high yield of 5.10% with a relatively high payout ratio as well at 77.3%. While relatively new to paying out dividends, having started in 2009, PETS does offer current value in today’s high priced stock market. The PE of PETS is 14.49, which like PETM, puts it well below the S&P and industry peers. Could this be a high yield value stock at current levels? Perhaps.
Of course, our pets get sick every now and then and need the veterinary care of Patterson Companies, Inc. (PDCO). PDCO serves as a leading distributor of supplies, equipment, vaccines and pharmaceuticals in the U.S. and the U.K. for pets, equines and clinics. PDCO currently yields 2.00% with a low payout ratio of 35.4% making this dividend safe based on current cash flow. Like PETS, PDCO is a relatively new dividend payer having started distributions in 2010. However, despite its relatively short time of having paid dividends, PDCO has doubled its payout from $0.10 to $0.20 in just four years. Another rocket ship dividend grower. Of course, this type of dividend growth won’t be sustained forever, PDCO might be a better shorter term investment allowing you to take advantage of unusually high short term dividend growth rates. On a valuation basis PDCO has a PE of 19.7 which is below its peers and about in line with the market in general.
When it comes to feeding and caring for our pets we have many choices of great dividend paying companies that produce products from The Clorox Company (CLX), Colgate-Palmolive Co. (CL), The Procter & Gamble Company (PG) to perhaps lesser known Spectrum Brands Holdings, Inc. (SPB).
Let’s start with Spectrum Brands Holdings, Inc. (SPB) since it doesn’t get as much attention as the other dividend stalwarts mentioned. SPB, a diversified company produces aquatic equipment and supplies, dog and cat treats, small animal foods, training aids, health and grooming products and bedding. SPB currently yields 1.50% with a low payout ratio of 28.3%. Shares of SPB recently had a very high run up and is at or near its 52 week high which has given it a high current PE of 50.27. However, forward valuations are back down on Earth at only 16.6. Given its recent run up, shares of SPB are overvalued and you might want to wait to pull the trigger on this one and see how its dividend policy becomes more established as SPB only started paying distributions in 2012 with regular payments being made in 2013.
And now onto the dividend stalwarts of the pet industry. First up is The Clorox Company (CLX). A company that needs no introduction CLX, the maker of Fresh Step and Scoop Away currently offers a generous 3.20% yield with a moderately high payout ratio of 68.4%. Of course, investors in CLX know all too well the tremendous dividend history of this company has, as payouts have been raised 36 years straight. Of course, the ten year annualized dividend growth rate of CLX has been impressive as well at 10.67%. The valuation of CLX is slightly high at 21.0 making it a little rich by general market standards on a current and forward basis as well. Maybe wait for a little pullback on this one.
Next, from the makers of Hill’s Science Diet dog and cat food we have another amazing dividend payer Colgate-Palmolive Co. (CL). CL currently yields 2.10% with a moderate payout ratio of 48.3% ensuring a safe dividend. CL has an amazing dividend history raising its payment every year for over 50 years! CL is also in the exclusive century club of dividend payers having paid a dividend every year since 1895. I think we can agree that CL is committed to its dividend policy. CL also has a very impressive ten year dividend growth rate at 11.45%. Those figures will help compound your money. On a current PE basis CL is expensive by any measure at 29.3. I know many dividend investors are waiting for a pullback to buy this one.
Finally, on our dividend pet adventure we have The Procter & Gamble Company (PG). The makers of Iams, Eukanuba and Natura brand pet foods, PG currently yields a generous 3.20% with a moderate payout ratio of 61.3%. PG, another dividend favorite, has been raising its payment every year for over 57 years with a ten year annualized dividend growth rate of 10.6%. Impressive numbers to say the least. On a PE basis PG might be a little rich at 21.1, however as you know, sometimes you have to pay up for quality. No worries as PG’s forward PE is only 17.4. This might help you justify buying at current levels. On a side note, Mars, Incorporated has recently agreed to buy the Iams, Eukanuba and Natura pet food brands from PG for $2.9 billion. The deal is set to go through later this year.
Clearly, investing in the pet industry offers a wide variety of dividend opportunities from very high yield (PETS), to amazing dividend growth (PETM, PDCO) to dividend stalwarts that need no introduction (CLX, CL, PG). The question then becomes which type of dividend stock suits your investing profile and style?
Disclosure: Long CLX, CL, PG
27 thoughts on “Dividend Investing For Our Furry Friends”
Wow, $50 billion. Who know the pet business could be so profitable 🙂 I was waiting to find P&G as I read through your list. I almost thought you forgot them lol. I guess you saved the best for last. I bought P&G a couple years ago for the diversified brands and nice dividend yield. Interesting that most of these companies have similar valuations. The only outlier might be CL. It’s had a great run over the last few years though. Maybe I’ll wait for a pull-back before buying it.
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I was to see that the pet industry was that size as well. Just goes to show, at least in the USA we aren’t afraid to spend on our little companions. Regarding CL, it is an amazing company but has been expensive for quite some time now. I know a lot of dividend investors are waiting to buy CL, just not at current levels. Thanks for your comment.
Another great post DivHut! Might I add Nestle (NSRGY) to the list? They make Purina pet food and have a 2.6% dividend yield.
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Thank you and thanks for the mention of NSRGY to the list. It’s amazing that so many of the brands we know, love and use are made by just a handful of amazing companies. I hope I was able to introduce you to some newer dividend paying companies in a sector that seems to be fairly recession resistant. Appreciate the comment.
The drawback to NSRGY for me is they only pay annually and the dividend is inconsistent. That said, I hope to someday find a spot for Nestle in my portfolio. In addition to Purina pet food and of course chocolates, they also own Gerber baby food. They’re on my watchlist but probably won’t make my portfolio until after I fill it up with some other companies I’m tracking.
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There is no question that NSRGY has the brand power of many amazing products sold worldwide but as you said from a dividend perspective it may not be the most solid choice for a dividend growth portfolio.
A friend of mine is a vet. That business has been doing quite well even through the great recession. To some people pets are like kids. They spend copious amounts of money keeping the pet healthy (and even alive). Who would spend several thousands of dollars on a hip replacement for your dog? Well there are plenty of people out there who care about their pets and go to that extreme. At least in the US it is a good market to be in.
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I happen to agree that we tend to be a little crazier here in the USA over pets than in other parts of the world. This industry is a testament to its resilience though having survived the great recession and faring a lot better than many other sectors. Thanks for stopping by.
Lot of people (especially in the US) spend more money on pets than on their kids. Depending on whether you are a pet lover or not, it might sound great or ridiculous.
Anyway, PG, CLX and CL are all great companies to be in. I am not aware of the other companies, but looks to be interesting. I am long on PG, though it is very small in my portfolio. Looking to increase it as well as initiate positions in CLX.
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It’s funny (sad) to think that some people spend more on their pets than on their kids. Of course, for many people their pets are their “kids” and I know I have seen people “walk” their little dogs in strollers and treat them like babies. While writing this article it was interesting to see the different “rocket ship” dividend modes among the companies. The high yield, high growth and stable, solid dividend stalwarts. Thanks for the comment.
My two cats and three dogs get nothing but Science Diet and Nutro for dinner. I’ll be eating Ramen noodles before my wife lets me buy Ol’ Roy for our furry friends. 🙂
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It’s amazing how many people are like you and treat and pamper their pets more than themselves. The power of the pet industry and its huge market I guess. Thanks for your comment.
Visit Detroit and see the roaming herds of x pets.
That’s a sad thing to see I’m sure. Despite that fact of abandoned pets there is no denying the huge $50+ billion market for the pet industry as a whole.
PG sold their pet food line off to Mars in April.
Yes, I was aware of the recent sale. I did mention in when discussing PG. Thanks for the tip.
Never knew some of these big name stocks were in the pet industry!
Love these themed tie ins. keep em comin!
Good Day and Grind On!
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Yup… the beauty of owning some of these well diversified companies is that the same maker of your toothpaste also produces pet food. Appreciate you stopping by.
Interesting post…with the exception of SPB, the rest definitely warrants some further research. But without further research, and based solely on the information you’ve provided in this article, I’d have to say that PETS and PG appear to be the greatest value plays in this group of stocks. AFFJ
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Each of the stocks mentioned provides a different opportunity for investment and dividends. My articles definitely provide good starting points and introductions to many different types of stocks but, of course, you should do your own due diligence and deeper research before committing any of your own money. Thank you for commenting.
Nice article on the diversified businesses of these companies. I know a little while ago PG agreed to sell IAMS to Mars. Not sure when or if it closes or they sell off that business. PG has so many Billion dollar brands and it will be interesting to watch what they do to expand.
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Glad you liked the article. I did mention the recent Mars/PG sale of the pet food business. It’s supposed to close in the second half of 2014 so PG should be divesting from that segment fairly soon. Thanks for your comment.
I like PetSmart. It’s a very well run company. Great post!
To tell you the truth I have only been to PetSmart and never really looked at the company from an investment point of view until now. But I have to agree with you, they seem to be doing the right things and their stock is reflecting how well the company is run. Thanks for your comment!
I love how you always put dividends stocks on groups. I think pets stocks have a good future, considering how much people are ready to spend on their furry friends. I bought PETS when they went on sale… 🙂 the other day my friend was saying, “oh I just bought flea treatment for my cat and dog online”. I asked, “which site?” Of course it was Petmed express. 🙂
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You and millions like you are buying stuff for pets all the time. The sector as a whole seemed to really go through the great recession pretty well too. Thanks for you comment!