Grupo Bimbo, S.A.B. de C.V.'s (BMV:BIMBOA) 1.3% Dividend Yield Looks Pretty Interesting

Today we'll take a closer look at Grupo Bimbo, S.A.B. de C.V. (BMV:BIMBOA) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

While Grupo Bimbo. de's 1.3% dividend yield is not the highest, we think its lengthy payment history is quite interesting. The company also returned around 1.8% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Some simple analysis can reduce the risk of holding Grupo Bimbo. de for its dividend, and we'll focus on the most important aspects below.

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

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. 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 25% of Grupo Bimbo. de's profits were paid out as dividends in the last 12 months. We'd say its dividends are thoroughly covered by earnings.

Consider getting our latest analysis on Grupo Bimbo. de's financial position here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. For the purpose of this article, we only scrutinise the last decade of Grupo Bimbo. de's dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was Mex$0.1 in 2011, compared to Mex$0.5 last year. Dividends per share have grown at approximately 15% per year over this time. The dividends haven't grown at precisely 15% every year, but this is a useful way to average out the historical rate of growth.

It's not great to see that the payment has been cut in the past. We're generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.

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? Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Grupo Bimbo. de has grown its earnings per share at 13% per annum over the past five years. Earnings per share are growing at a solid clip, and the payout ratio is low. We think this is an ideal combination in a dividend stock.

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. Firstly, we like that Grupo Bimbo. de has a low and conservative payout ratio. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Grupo Bimbo. de fits all of our criteria, and we think it's an attractive dividend idea that would warrant further investigation.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Grupo Bimbo. de that investors should take into consideration.

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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