Gruma. de's (BMV:GRUMAB) Upcoming Dividend Will Be Larger Than Last Year's

Gruma, S.A.B. de C.V. (BMV:GRUMAB) will increase its dividend from last year's comparable payment on the 7th of October to $1.35. This makes the dividend yield 2.1%, which is above the industry average.

See our latest analysis for Gruma. de

Gruma. de Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Gruma. de was paying a whopping 117% as a dividend, but this only made up 35% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Earnings per share is forecast to rise by 39.1% 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 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. The annual payment during the last 8 years was $0.116 in 2014, and the most recent fiscal year payment was $0.258. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. However, Gruma. de's EPS was effectively flat over the past five years, which could stop the company from paying more every year. While EPS growth is quite low, Gruma. de has the option to increase the payout ratio to return more cash 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. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Gruma. de that investors should take into consideration. 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.