Is Value Grupo Financiero, S.A.B. de C.V. (BMV:VALUEGFO) At Risk Of Cutting Its Dividend?

Is Value Grupo Financiero, S.A.B. de C.V. (BMV:VALUEGFO) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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.

Investors might not know much about Value Grupo Financiero. de's dividend prospects, even though it has been paying dividends for the last nine years and offers a 2.7% yield. While the yield may not look too great, the relatively long payment history is interesting. Some simple analysis can reduce the risk of holding Value Grupo Financiero. de for its dividend, and we'll focus on the most important aspects below.

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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. In the last year, Value Grupo Financiero. de paid out 102% of its profit as dividends. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

We update our data on Value Grupo Financiero. 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 last decade of data, we can see that Value Grupo Financiero. de paid its first dividend at least nine years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we're cautious about the consistency of its dividend across a full economic cycle. During the past nine-year period, the first annual payment was Mex$5.0 in 2012, compared to Mex$3.0 last year. This works out to be a decline of approximately 5.5% per year over that time. Value Grupo Financiero. de's dividend has been cut sharply at least once, so it hasn't fallen by 5.5% every year, but this is a decent approximation of the long term change.

We struggle to make a case for buying Value Grupo Financiero. de for its dividend, given that payments have shrunk over the past nine years.

Conclusion

To summarise, shareholders should always check that Value Grupo Financiero. de's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with its high payout ratio. Unfortunately, the company has not been able to generate earnings growth, and cut its dividend at least once in the past. With this information in mind, we think Value Grupo Financiero. de may not be an ideal 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for Value Grupo Financiero. de (2 don't sit too well with us!) that you should be aware of before investing.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding 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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