Gruma, S.A.B. de C.V. (BMV:GRUMAB) will pay a dividend of $1.35 on the 12th of January. This means the dividend yield will be fairly typical at 1.9%.
View our latest analysis for Gruma. de
Gruma. de Is Paying Out More Than It Is Earning
We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Gruma. de's dividend was only 28% of earnings, however it was paying out 371% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Earnings per share is forecast to rise by 25.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.
Gruma. de Is Still Building Its Track Record
Gruma. de's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2014, the annual payment back then was $0.116, compared to the most recent full-year payment of $0.295. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Gruma. de has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Has Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Gruma. de has grown earnings per share at 6.6% per year over the past five years. Gruma. de definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Gruma. de that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
About BMV:GRUMA B
Gruma. de
Produces and sells corn flour, tortillas, and other related products.
Outstanding track record with excellent balance sheet.
