Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Wal-Mart de México, S.A.B. de C.V. (BMV:WALMEX) is about to trade ex-dividend in the next four 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Wal-Mart de México. de’s shares before the 27th of November to receive the dividend, which will be paid on the 29th of November.

The company’s next dividend payment will be Mex$0.97 per share, and in the last 12 months, the company paid a total of Mex$1.72 per share. Calculating the last year’s worth of payments shows that Wal-Mart de México. de has a trailing yield of 2.5% on the current share price of MX$67.98. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s growing.

See our latest analysis for Wal-Mart de México. 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. That’s why it’s good to see Wal-Mart de México. de paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Wal-Mart de México. de generated enough free cash flow to afford its dividend. Dividends consumed 56% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re encouraged by the steady growth at Wal-Mart de México. de, with earnings per share up 9.7% on average over the last five years. Decent historical earnings per share growth suggests Wal-Mart de México. de has been effectively growing value for shareholders. However, it’s now paying out more than half its earnings as dividends. Therefore it’s unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Wal-Mart de México. de has lifted its dividend by approximately 6.5% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Wal-Mart de México. de an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and Wal-Mart de México. de paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

Curious what other investors think of Wal-Mart de México. de? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.

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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.