Grupo Herdez. de (BMV:HERDEZ) Could Be A Buy For Its Upcoming Dividend

By
Simply Wall St
Published
October 05, 2021
BMV:HERDEZ *
Source: Shutterstock

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Grupo Herdez, S.A.B. de C.V. (BMV:HERDEZ) is about to go ex-dividend in just 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Grupo Herdez. de's shares on or after the 11th of October will not receive the dividend, which will be paid on the 13th of October.

The company's next dividend payment will be Mex$0.60 per share. Last year, in total, the company distributed Mex$1.20 to shareholders. Based on the last year's worth of payments, Grupo Herdez. de stock has a trailing yield of around 2.9% on the current share price of MX$40.8. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Grupo Herdez. de can afford its dividend, and if the dividend could grow.

See our latest analysis for Grupo Herdez. de

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Grupo Herdez. de paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Grupo Herdez. de generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 27% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Grupo Herdez. de's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
BMV:HERDEZ * Historic Dividend October 6th 2021

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Grupo Herdez. de's earnings per share have been growing at 18% a year for the past five years. Grupo Herdez. de has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Grupo Herdez. de has delivered an average of 4.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Grupo Herdez. de is keeping back more of its profits to grow the business.

To Sum It Up

From a dividend perspective, should investors buy or avoid Grupo Herdez. de? Grupo Herdez. de's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

So while Grupo Herdez. de looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for Grupo Herdez. de that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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