PriceSmart Hikes Dividend 11.1% Amid Overvaluation and Persistent FX Headwinds

What happened

PriceSmart announced an 11.1% increase to its annual dividend, raising it to $1.40 per share after its 2026 annual meeting. This move occurs as the DeepValue report rates the stock a 'POTENTIAL SELL' due to a stretched valuation of ~26x trailing EPS and ~13x EV/EBITDA. The report highlights rising SG&A costs, which reached 13.1% of revenues in Q1-26, and FX losses of $26.0 million in FY25, eroding operating leverage. Historically, dividend increases have been steady, but operating margins have slipped to 4.4% in FY25 amid technology investments that have yet to deliver promised efficiencies. Thus, the dividend hike appears more as a shareholder-friendly gesture rather than a solution to underlying financial pressures.

Implication

The higher dividend payout could pressure cash flow if FX losses and SG&A increases persist, potentially limiting capital for growth initiatives like club expansions. While signaling management's confidence, the increase is insufficient to justify the premium multiple, given slowing earnings growth and execution uncertainties. Yield-focused investors might find the boost attractive, but total return prospects remain constrained by the stock's elevated price and bear-case downside to $95. Critical monitoring of SG&A trends and FX impacts in upcoming quarters is essential to assess sustainability. Overall, this news reinforces the DeepValue recommendation to avoid or trim positions, as risk-reward remains unfavorable for new capital.

Thesis delta

The dividend increase does not shift the core thesis of overvaluation and operational headwinds. It may provide a marginal yield benefit but fails to address key risks such as FX drag exceeding 20% of operating income or SG&A ratio staying above 13.5%. The 'POTENTIAL SELL' rating remains intact, with the stock still trading above the base case value of $125 and requiring a pullback to $105 for an attractive entry.