Readers hoping to buy Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 30th of October in order to be eligible for this dividend, which will be paid on the 12th of November.
Coca-Cola FEMSA. de's next dividend payment will be US$0.9 per share, on the back of last year when the company paid a total of US$35.4 to shareholders. Calculating the last year's worth of payments shows that Coca-Cola FEMSA. de has a trailing yield of 3.3% on the current share price of $56.76. 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 check whether the dividend payments are covered, and if earnings are growing.
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. Coca-Cola FEMSA. de is paying out an acceptable 62% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Coca-Cola FEMSA. de generated enough free cash flow to afford its dividend. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Coca-Cola FEMSA. de's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Coca-Cola FEMSA. de has delivered an average of 17% per year annual increase in its dividend, based on the past ten years of dividend payments.
To Sum It Up
Should investors buy Coca-Cola FEMSA. de for the upcoming dividend? It's unfortunate that earnings per share have not grown, and we'd note that Coca-Cola FEMSA. de is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Curious what other investors think of Coca-Cola FEMSA. de? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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