Fomento Económico Mexicano. de (BMV:FEMSAUBD) Has Announced A Dividend Of MX$3.67

The board of Fomento Económico Mexicano, S.A.B. de C.V. (BMV:FEMSAUBD) has announced that it will pay a dividend on the 17th of October, with investors receiving MX$3.67 per share. This takes the dividend yield to 7.9%, which shareholders will be pleased with.

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Fomento Económico Mexicano. de's Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, Fomento Económico Mexicano. de is earning enough to cover the payment, but then it makes up 310% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Earnings per share is forecast to rise by 47.4% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 119%, which is a bit high and could start applying pressure to the balance sheet.

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Fomento Económico Mexicano. de Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from MX$2.20 total annually to MX$14.69. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Fomento Económico Mexicano. de's EPS was effectively flat over the past five years, which could stop the company from paying more every year. The company has been growing at a pretty soft 1.3% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Fomento Económico Mexicano. de is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. For instance, we've picked out 1 warning sign for Fomento Económico Mexicano. de that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of 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.