Iberdrola (BME:IBE) Is Increasing Its Dividend To €0.1458

Iberdrola, S.A. (BME:IBE) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of January to €0.1458. Based on this payment, the dividend yield for the company will be 4.2%, which is fairly typical for the industry.

Check out the opportunities and risks within the ES Electric Utilities industry.

Iberdrola's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. The last payment was quite easily covered by earnings, but it made up 138% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 12.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 57% by next year, which is in a pretty sustainable range.

Iberdrola Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of €0.03 in 2012 to the most recent total annual payment of €0.438. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

We Could See Iberdrola's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Iberdrola has grown earnings per share at 8.1% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Iberdrola will make a great income stock. While Iberdrola is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Iberdrola (of which 1 is concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.