Cydsa. de (BMV:CYDSASAA) Could Be A Buy For Its Upcoming Dividend

Cydsa, S.A.B. de C.V. (BMV:CYDSASAA) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Cydsa. de's shares before the 27th of March in order to be eligible for the dividend, which will be paid on the 2nd of April.

The company's next dividend payment will be Mex$0.555481 per share, on the back of last year when the company paid a total of Mex$0.46 to shareholders. Looking at the last 12 months of distributions, Cydsa. de has a trailing yield of approximately 2.4% on its current stock price of Mex$19.20. If you buy this business for its dividend, you should have an idea of whether Cydsa. de's dividend is reliable and sustainable. As a result, readers should always check whether Cydsa. de has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Cydsa. de

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Cydsa. de paid out just 12% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 26% of its free cash flow in the past year.

It's positive to see that Cydsa. 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 how much of its profit Cydsa. de paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Cydsa. de's earnings have been skyrocketing, up 22% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Cydsa. de has lifted its dividend by approximately 9.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Cydsa. de worth buying for its dividend? Cydsa. de has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Cydsa. de, and we would prioritise taking a closer look at it.

So while Cydsa. de looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 2 warning signs with Cydsa. de and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking 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.