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Sustainable dividends spurred by the pandemic pet craze.

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A pandemic-induced puppy boom for lonely North Americans stuck at home continues to pay off postlockdown. General Mills’ dog and cat food business is just the latest industry player to announce a jump in sales – 14 per cent in the most recent quarter. The gain is partly the result of higher prices but also significantly greater volumes.

In fact, the American Pet Products Association reports that total pet industry sales in the U.S. hit US$136.8-billion in 2022, up a solid 10.8 per cent from 2021. This includes pet food and treats, veterinary care and products, supplies, live animals, over-the-counter medications and other services. And sales are forecast to rise a further 5 per cent this year, to US$143.6-billion.

At the same time, rising global living standards continue to boost demand for protein-rich meat diets. That in turn has helped the livestock business and expanded its health care needs.

From a list of animal-health stocks we identified leaders that pay dividends. We then applied our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:

  • one point for five years of continuous dividend payments – two points for more than five;
  • two points if it has raised the payment in the past five years;
  • one point for management’s commitment to dividends;
  • one point for operating in non-cyclical industries;
  • one point for limited exposure to foreign currency rates and freedom from political interference;
  • two points for a strong balance sheet, including manageable debt and adequate cash;
  • two points for a long-term record of positive earnings and cash flow to cover dividends;
  • and one point if the company is an industry leader.

Companies with 10 to 12 points have the most secure dividends or the highest sustainability. Those with seven to nine points have above-average sustainability; four to six points, average sustainability; and one to three points, below-average sustainability.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc., the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Six pet companies spurred by the pandemic

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. (US$ Bil.)1Y Ttl. Rtn. (%) Recent Price (US$)
1General Mills Inc. GIS-NHighest102.549,790.127.285.03
2Zoetis Inc.ZTS-NAbove Average90.976,477.2-14.1162.66
3Patterson Cos. Inc.PDCO-QAbove Average84.02,602.3-17.526.31
4Tractor Supply Co.TSCO-QAbove Average81.825,263.0-0.6230.44
5PetMed Express Inc.PETS-QAbove Average77.5345.4-4216.08
6Phibro Animal Health Corp.PAHC-QAbove Average73.2594.6-23.415.03

Source: Dividend Advisor. 

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

Our TSI Dividend Sustainability Rating System generated six stocks. PetMed Express Inc. PETS-Q, headquartered in Delray Beach, Fla., is a leading online U.S. pet pharmacy. New Jersey-based Phibro Animal Health Corp. PAHC-Q is a globally diversified animal health and mineral nutrition company. Also based in New Jersey, Zoetis Inc. ZTS-N is a leader in veterinary medicines, vaccines and diagnostic tools. (Its very low yield in part reflects the company’s high reinvestment of revenue in R&D.) Minnesota’s Patterson Companies Inc. PDCO-Q gets the majority of its sales from supplying veterinary clinics in the U.S., Britain and Canada (and the rest from dental supplies). General Mills Inc. GIS-N, also headquartered in Minnesota, gets about 12 per cent of its sales from pet food, including its Blue Buffalo brand, a rapidly expanding contributor to revenue. Meanwhile, U.S. rural lifestyle retailer Tractor Supply Co. TSCO-Q, headquartered in Brentwood, Tenn., gets more than half its revenue from livestock and pet products.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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