Gruma, S.A.B. de C.V. (BMV:GRUMAB) will increase its dividend on the 8th of July to Mex$1.35. This takes the annual payment to 2.1% of the current stock price, which is about average for the industry.
Gruma. 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. Before making this announcement, Gruma. de was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 5.4%. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.
Gruma. de Doesn't Have A Long Payment History
It is great to see that Gruma. de has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2014, the dividend has gone from Mex$1.50 to Mex$5.20. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
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. Earnings has been rising at 3.7% per annum over the last five years, which admittedly is a bit slow. If Gruma. de is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.
Our Thoughts On Gruma. de's Dividend
Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
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 2 warning signs for Gruma. de that investors should take into consideration. Is Gruma. de not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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