Why Corporativo Fragua, S.A.B. de C.V. (BMV:FRAGUAB) Should Be In Your Dividend Portfolio

Is Corporativo Fragua, S.A.B. de C.V. (BMV:FRAGUAB) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

While Corporativo Fragua. de's 1.1% dividend yield is not the highest, we think its lengthy payment history is quite interesting. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Explore this interactive chart for our latest analysis on Corporativo Fragua. 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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 16% of Corporativo Fragua. de's profits were paid out as dividends in the last 12 months. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Corporativo Fragua. de paid out 12% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

While the above analysis focuses on dividends relative to a company's earnings, we do note Corporativo Fragua. de's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Consider getting our latest analysis on Corporativo Fragua. de's financial position 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. Corporativo Fragua. de has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was Mex$0.8 in 2011, compared to Mex$3.1 last year. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time.

It's rare to find a company that has grown its dividends rapidly over 10 years and not had any notable cuts, but Corporativo Fragua. de has done it, which we really like.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. It's good to see Corporativo Fragua. de has been growing its earnings per share at 16% a year over the past five years. Rapid earnings growth and a low payout ratio suggests this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that Corporativo Fragua. de has low and conservative payout ratios. That said, we were glad to see it growing earnings and paying a fairly consistent dividend. Overall, we think there are a lot of positives to Corporativo Fragua. de from a dividend perspective.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Are management backing themselves to deliver performance? Check their shareholdings in Corporativo Fragua. de in our latest insider ownership analysis.

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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