Why It Might Not Make Sense To Buy Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (BMV:GAPB) For Its Upcoming Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (BMV:GAPB) is about to go ex-dividend in just 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least 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 Grupo Aeroportuario del Pacífico. de's shares before the 5th of November in order to be eligible for the dividend, which will be paid on the 6th of November.
The company's next dividend payment will be Mex$20.80 per share. Last year, in total, the company distributed Mex$20.80 to shareholders. Looking at the last 12 months of distributions, Grupo Aeroportuario del Pacífico. de has a trailing yield of approximately 4.8% on its current stock price of Mex$434.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Grupo Aeroportuario del Pacífico. de paid out 114% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 132% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Cash is slightly more important than profit from a dividend perspective, but given Grupo Aeroportuario del Pacífico. de's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
View our latest analysis for Grupo Aeroportuario del Pacífico. de
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 Grupo Aeroportuario del Pacífico. de's earnings have been skyrocketing, up 36% per annum for the past five years. Grupo Aeroportuario del Pacífico. de's dividend was not well covered by earnings, although at least its earnings per share are growing quickly. Generally, when a company is growing this quickly and paying out all of its earnings as dividends, it can suggest either that the company is borrowing heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Grupo Aeroportuario del Pacífico. de has lifted its dividend by approximately 18% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Grupo Aeroportuario del Pacífico. de? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. Bottom line: Grupo Aeroportuario del Pacífico. de has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Grupo Aeroportuario del Pacífico. de. For example, Grupo Aeroportuario del Pacífico. de has 4 warning signs (and 1 which is potentially serious) we think you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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