Wal-Mart de México. de (BMV:WALMEX) Could Be A Buy For Its Upcoming Dividend

Wal-Mart de México, S.A.B. de C.V. (BMV:WALMEX) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Wal-Mart de México. de's shares before the 11th of November in order to receive the dividend, which the company will pay on the 12th of November.

The company's next dividend payment will be Mex$1.08 per share, and in the last 12 months, the company paid a total of Mex$2.17 per share. Looking at the last 12 months of distributions, Wal-Mart de México. de has a trailing yield of approximately 3.9% on its current stock price of Mex$55.89. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Wal-Mart de México. de

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Wal-Mart de México. de's payout ratio is modest, at just 39% of profit. A useful secondary check can be to evaluate whether Wal-Mart de México. de generated enough free cash flow to afford its dividend. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Wal-Mart de México. de earnings per share are up 7.9% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Wal-Mart de México. de has delivered 4.6% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Wal-Mart de México. de an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Wal-Mart de México. de is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Wal-Mart de México. de is halfway there. There's a lot to like about Wal-Mart de México. de, and we would prioritise taking a closer look at it.

In light of that, while Wal-Mart de México. de has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Wal-Mart de México. de you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.