Factors Income Investors Should Consider Before Adding Grupo Rotoplas S.A.B. de C.V. (BMV:AGUA) To Their Portfolio

Dividend paying stocks like Grupo Rotoplas S.A.B. de C.V. (BMV:AGUA) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

With a 1.2% yield and a five-year payment history, investors probably think Grupo Rotoplas. de looks like a reliable dividend stock. While the yield may not look too great, the relatively long payment history is interesting. The company also bought back stock during the year, equivalent to approximately 1.6% of the company's market capitalisation at the time. Remember though, due to the recent spike in its share price, Grupo Rotoplas. de's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. There are a few simple ways to reduce the risks of buying Grupo Rotoplas. de for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Grupo Rotoplas. de!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 88% of Grupo Rotoplas. de's profits were paid out as dividends in the last 12 months. Paying out a majority of its earnings limits the amount that can be reinvested in the business. This may indicate a commitment to paying a dividend, or a dearth of investment opportunities.

We update our data on Grupo Rotoplas. de every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the data, we can see that Grupo Rotoplas. de has been paying a dividend for the past five years. During the past five-year period, the first annual payment was Mex$0.3 in 2016, compared to Mex$0.4 last year. This works out to be a compound annual growth rate (CAGR) of approximately 9.9% a year over that time.

The dividend has been growing at a reasonable rate, which we like. We're conscious though that one of the best ways to detect a multi-decade consistent dividend-payer, is to watch a company pay dividends for 20 years - a distinction Grupo Rotoplas. de has not achieved yet.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Grupo Rotoplas. de's EPS have fallen by approximately 13% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Grupo Rotoplas. de's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Grupo Rotoplas. de's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think Grupo Rotoplas. de has an acceptable payout ratio. Earnings per share are down, and to our mind Grupo Rotoplas. de has not been paying a dividend long enough to demonstrate its resilience across economic cycles. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Grupo Rotoplas. de out there.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come accross 5 warning signs for Grupo Rotoplas. de you should be aware of, and 2 of them don't sit too well with us.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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