Iberdrola (BME:IBE) Is Increasing Its Dividend To €0.2818

Iberdrola, S.A. (BME:IBE) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of July to €0.2818. This takes the annual payment to 4.6% of the current stock price, which is about average for the industry.

See our latest analysis for Iberdrola

Iberdrola's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last dividend, Iberdrola is earning enough to cover the payment, but then it makes up 101% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to fall by 4.3% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 61%, which is comfortable for the company to continue in the future.

Iberdrola Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was €0.03 in 2014, and the most recent fiscal year payment was €0.55. This implies that the company grew its distributions at a yearly rate of about 34% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Iberdrola has been growing its earnings per share at 15% a 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.

Our Thoughts On Iberdrola's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Iberdrola's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Iberdrola (1 doesn't sit too well with us!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.