The board of Grupo Herdez, S.A.B. de C.V. (BMV:HERDEZ) has announced that it will pay a dividend on the 12th of October, with investors receiving MX$0.60 per share. This makes the dividend yield 3.5%, which will augment investor returns quite nicely.
See our latest analysis for Grupo Herdez. de
Grupo Herdez. de's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Grupo Herdez. de was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
The next year is set to see EPS grow by 33.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 46% by next year, which is in a pretty sustainable range.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MX$0.75 in 2012 to the most recent total annual payment of MX$1.20. This implies that the company grew its distributions at a yearly rate of about 4.8% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Grupo Herdez. de May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Grupo Herdez. de hasn't seen much change in its earnings per share over the last five years. Growth of 0.7% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.
In Summary
Overall, we think Grupo Herdez. de is a solid choice as a dividend stock, even though the dividend wasn't raised this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Grupo Herdez. de has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Grupo Herdez. de not quite the opportunity you were looking for? Why not check out our selection of top 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.
About BMV:HERDEZ *
Grupo Herdez. de
A food company, engages in the manufacture, purchase, distribution, and marketing of canned and packed food products in Mexico and internationally.
Excellent balance sheet, good value and pays a dividend.
