Coca-Cola FEMSA. de's (NYSE:KOF) Shareholders Will Receive A Bigger Dividend Than Last Year

Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) has announced that it will be increasing its dividend on the 15th of November to US$1.23. This will take the annual payment to 4.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Coca-Cola FEMSA. de

Coca-Cola FEMSA. de's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Coca-Cola FEMSA. de's dividend made up quite a large proportion of earnings but only 43% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 15.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 4.0%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Coca-Cola FEMSA. de Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2011, the dividend has gone from Mex$23.60 to Mex$50.40. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Coca-Cola FEMSA. de May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, Coca-Cola FEMSA. de has only grown its earnings per share at 4.5% per annum over the past five years. Coca-Cola FEMSA. de's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On Coca-Cola FEMSA. de's Dividend

Overall, we always like to see the dividend being raised, but we don't think Coca-Cola FEMSA. de will make a great income stock. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Coca-Cola FEMSA. de that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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.

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