Fomento Económico Mexicano. de's (BMV:FEMSAUBD) Shareholders Will Receive A Bigger Dividend Than Last Year

Fomento Económico Mexicano, S.A.B. de C.V. (BMV:FEMSAUBD) will increase its dividend from last year's comparable payment on the 7th of November to MX$1.83. Based on this payment, the dividend yield for the company will be 2.1%, which is fairly typical for the industry.

Check out our latest analysis for Fomento Económico Mexicano. de

Fomento Económico Mexicano. de's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Fomento Económico Mexicano. de's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 41.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

Fomento Económico Mexicano. de Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the dividend has gone from MX$1.86 total annually to MX$3.66. This implies that the company grew its distributions at a yearly rate of about 7.0% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. In the last five years, Fomento Económico Mexicano. de's earnings per share has shrunk at approximately 5.0% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Fomento Económico Mexicano. de that investors need to be conscious of moving forward. Is Fomento Económico Mexicano. de not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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