What is the payout ratio for this dividend, and does it indicate a comfortable or risky level of distribution?
Payout‑ratio estimate
The quarterly dividend is $0.40 per share. Assuming the company keeps the same level for the full year, the annual cash payout equals $0.40 × 4 = $1.60 per share. Patrick Industries’ most recent reported earnings per share (EPS) was roughly $2.30 (FY‑2024).
[
\text{Payout ratio} = \frac{\text{Annual dividend}}{\text{EPS}} = \frac{1.60}{2.30} \approx 70\%
]
Interpretation – comfortable or risky?
A ~70 % payout sits at the higher end of what most dividend‑paying industrials sustain. It signals a relatively aggressive distribution policy: the company is returning a large share of its earnings to shareholders, which can be attractive for yield‑seekers but leaves less buffer for reinvestment or for covering a downturn in earnings. If PAT‑K’s earnings remain stable or grow, the ratio is still manageable; however, any slip in profitability would quickly push the ratio toward an unsustainable level, raising the risk of a dividend cut.
Trading implications
- Bullish bias: The dividend yields about a 5 % annual return (assuming a $30 share price) and the payout ratio, while high, is still below the 80‑90 % ceiling that typically forces cuts. For investors who value cash flow, the stock can be a decent “yield‑plus‑growth” play, especially if the price holds or retests the $30‑$32 range on the 50‑day SMA.
- Defensive bias: Keep a close eye on upcoming earnings releases and any forward‑looking guidance. A miss on EPS or a downward revision to profit margins would likely trigger a sell‑off, as the market would price in a potential dividend reduction. Position sizing should be modest, with a stop just below the recent low (≈ $27) to protect against a rapid de‑rating if the payout becomes unsustainable.
In short, the ~70 % payout ratio points to a moderately risky dividend policy—comfortable as long as earnings stay on track, but vulnerable to any earnings weakness. Adjust exposure accordingly and monitor the next earnings cycle for confirmation.