Why You Might Be Interested In Grupo Herdez, S.A.B. de C.V. (BMV:HERDEZ) For Its Upcoming Dividend

It looks like Grupo Herdez, S.A.B. de C.V. (BMV:HERDEZ) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Grupo Herdez. de's shares before the 11th of October in order to receive the dividend, which the company will pay on the 14th of October.

The company's upcoming dividend is Mex$0.75 a share, following on from the last 12 months, when the company distributed a total of Mex$1.50 per share to shareholders. Looking at the last 12 months of distributions, Grupo Herdez. de has a trailing yield of approximately 2.8% on its current stock price of Mex$53.90. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Grupo Herdez. de can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Grupo Herdez. de

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Grupo Herdez. de's payout ratio is modest, at just 34% of profit. A useful secondary check can be to evaluate whether Grupo Herdez. de generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 5.4% of its cash flow last year.

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.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Grupo Herdez. de's earnings per share have risen 10% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Grupo Herdez. de has delivered an average of 5.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Is Grupo Herdez. de an attractive dividend stock, or better left on the shelf? It's great that Grupo Herdez. de is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. 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. Our analysis shows 2 warning signs for Grupo Herdez. de and you should be aware of these before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.