Grupo Herdez. de (BMV:HERDEZ) Has Affirmed Its Dividend Of Mex$0.60

The board of Grupo Herdez, S.A.B. de C.V. (BMV:HERDEZ) has announced that it will pay a dividend of Mex$0.60 per share on the 11th of May. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.

View our latest analysis for Grupo Herdez. de

Grupo Herdez. de's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Grupo Herdez. de's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 54.7% over the next year. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was Mex$0.75, compared to the most recent full-year payment of Mex$1.20. This means that it has been growing its distributions at 4.8% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Grupo Herdez. de's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.5% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. 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.

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. As an example, we've identified 1 warning sign for Grupo Herdez. de that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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