Read This Before Buying Crédito Real, S.A.B. de C.V., Sociedad Financiera de Objeto Múltiple, Entidad No Regulada (BMV:CREAL) For Its Dividend

Dividend paying stocks like Crédito Real, S.A.B. de C.V., Sociedad Financiera de Objeto Múltiple, Entidad No Regulada (BMV:CREAL) 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. 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.

In this case, Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada likely looks attractive to dividend investors, given its 6.5% dividend yield and seven-year payment history. We'd agree the yield does look enticing. The company also returned around 2.6% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.

Explore this interactive chart for our latest analysis on Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 26% of Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada's profits were paid out as dividends in the last 12 months. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.

We update our data on Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada has been paying a dividend for the past seven years. It's good to see that Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we're concerned that what has been cut once, could be cut again. During the past seven-year period, the first annual payment was Mex$0.5 in 2013, compared to Mex$0.8 last year. This works out to be a compound annual growth rate (CAGR) of approximately 5.1% a year over that time. The dividends haven't grown at precisely 5.1% every year, but this is a useful way to average out the historical rate of growth.

It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada might have put its house in order since then, but we remain cautious.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada's earnings per share have been essentially flat over the past five years. Over the long term, steady earnings per share is a risk as the value of the dividends can be reduced by inflation.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're glad to see Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada has a low payout ratio, as this suggests earnings are being reinvested in the business. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come accross 3 warning signs for Crédito Real. de Sociedad Financiera de Objeto Múltiple Entidad No Regulada you should be aware of, and 1 of them is a bit unpleasant.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 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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