Premium Brands Holdings: A Dividend Powerhouse or a Risky Bet?

Premium Brands Holdings (TSE:PBH) has been making waves in the Consumer Defensive sector with its impressive dividend payouts. The company recently declared a dividend of CA$0.85 per share, continuing its streak of consistent dividend growth over the past 16 years. But is this dividend sustainable, or is it a sign of a company living beyond its means?

Let's dive into the numbers. Premium Brands Holdings has a dividend payout ratio of 85.43%, which is significantly higher than the sector average of 2.488%. This means that the company is distributing a large portion of its earnings as dividends to shareholders. While this can be attractive to income-focused investors, it also suggests that the company has less retained earnings to reinvest in growth opportunities or to buffer against potential financial downturns.



The company's earnings per share (EPS) have been sufficient to cover the dividend payout. For example, in the past year, the EPS was C$2.23, and the annual dividend per share was C$3.40, resulting in a payout ratio of 85.43%, which is considered sustainable. However, any significant decline in earnings could put pressure on the company's ability to maintain this dividend level.

Premium Brands Holdings has demonstrated a consistent increase in its dividend payout over the past 16 years, with a notable growth in the dividend amount per share. For instance, the dividend amount per share increased from C$0.70 in 2022 to C$0.85 in 2024. This consistent growth can be attributed to several factors:

1. Sustainable Earnings: The company's earnings per share (EPS) have been sufficient to cover the dividend payout. For example, in the past year, the EPS was C$2.23, and the annual dividend per share was C$3.40, resulting in a payout ratio of 85.43%, which is considered sustainable.

2. Strong Financial Performance: Premium Brands Holdings has reported record sales and adjusted EBITDA in recent quarters. For example, the company announced record fourth-quarter sales and adjusted EBITDA on March 21, 2025. This strong financial performance indicates the company's ability to generate sufficient cash flow to support dividend payments.

3. Strategic Acquisitions and Growth: The company has been actively involved in acquisitions and strategic growth initiatives. For instance, on March 20, 2025, the company announced the exercise of the over-allotment option issued in connection with its recently completed $150 million public offering of 5.50% convertible unsecured subordinated debentures. These acquisitions and growth initiatives can contribute to increased earnings and cash flow, supporting future dividend growth.

4. Consistent Dividend Policy: The company has a history of paying dividends on a quarterly basis, which indicates a commitment to maintaining and growing the dividend. For example, the next ex-dividend date is March 31, 2025, with a payment date of April 15, 2025, and a dividend amount per share of C$3.4.



These factors suggest that Premium Brands Holdings is well-positioned to continue its dividend growth in the future. The company's strong financial performance, sustainable earnings, strategic growth initiatives, and consistent dividend policy all contribute to a positive outlook for future dividend growth.

However, investors should be cautious. The high payout ratio of 85.43% means that the company has less room for error. Any significant decline in earnings or unexpected expenses could put pressure on the company's ability to maintain its dividend payments. Additionally, the company's reliance on acquisitions for growth could be a double-edged sword. While acquisitions can contribute to increased earnings and cash flow, they can also be risky and may not always result in the desired outcomes.

In conclusion, Premium Brands Holdings' dividend payout of CA$0.85 per share is a testament to the company's strong financial performance and commitment to shareholders. However, investors should be aware of the risks associated with the company's high payout ratio and reliance on acquisitions for growth. As always, it's important to do your own research and consider all factors before making any investment decisions.