Gruma, S.A.B. de C.V.'s (BMV:GRUMAB) dividend will be increasing from last year's payment of the same period to $1.35 on 6th of January. This makes the dividend yield 2.2%, which is above the industry average.
Our analysis indicates that GRUMA B is potentially undervalued!
Gruma. de Doesn't Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much. Gruma. de is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Earnings per share is forecast to rise by 50.8% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.
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. The dividend has gone from an annual total of $0.116 in 2014 to the most recent total annual payment of $0.258. This means that it has been growing its distributions at 11% per annum over that time. 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.
Dividend Growth May Be Hard To Achieve
The company's investors will be pleased to have been receiving dividend income for some time. However, Gruma. de's EPS was effectively flat over the past five years, which could stop the company from paying more every year. 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, 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. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Gruma. de (of which 1 is concerning!) you should know about. 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.
About BMV:GRUMA B
Gruma. de
Produces and sells corn flour, tortillas, and other related products.
Outstanding track record with excellent balance sheet.
