Gruma. de (BMV:GRUMAB) Will Pay A Larger Dividend Than Last Year At $1.35

The board of Gruma, S.A.B. de C.V. (BMV:GRUMAB) has announced that it will be paying its dividend of $1.35 on the 6th of January, an increased payment from last year's comparable dividend. This takes the dividend yield to 2.3%, which shareholders will be pleased with.

Check out the opportunities and risks within the MX Food industry.

Gruma. de Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Gruma. de's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next 12 months is set to see EPS grow by 50.8%. 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 Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2014, the annual payment back then was $0.116, compared to the most recent full-year payment of $0.258. This means that it has been growing its distributions at 11% per annum 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.

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. Unfortunately, Gruma. de's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While growth may be thin on the ground, Gruma. de could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Gruma. de will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

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. Case in point: We've spotted 2 warning signs for Gruma. de (of which 1 doesn't sit too well with us!) you should know about. 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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