Grupo Herdez. de (BMV:HERDEZ) Is Due To Pay A 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 12th of October. This makes the dividend yield 4.4%, which will augment investor returns quite nicely.

Check out our latest analysis for Grupo Herdez. de

Grupo Herdez. de's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments 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.

Over the next year, EPS is forecast to expand by 53.2%. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was Mex$0.75, compared to the most recent full-year payment of Mex$1.20. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, Grupo Herdez. de's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Grupo Herdez. de is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, a consistent dividend is a good thing, and we think that Grupo Herdez. de has the ability to continue this into the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Grupo Herdez. de that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.