Iberdrola, S.A.'s (BME:IBE) investors are due to receive a payment of €0.1863 per share on 23rd of January. Although the dividend is now higher, the yield is only 2.7%, which is below the industry average.
See our latest analysis for Iberdrola
Iberdrola's Payment Could Potentially Have Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last dividend, Iberdrola is earning enough to cover the payment, but then it makes up 97% 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.
EPS is set to fall by 11.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 61%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was €0.03 in 2014, and the most recent fiscal year payment was €0.351. This means that it has been growing its distributions at 28% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Iberdrola has impressed us by growing EPS at 15% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
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. While Iberdrola is earning enough to cover the payments, the cash flows are lacking. We don't think Iberdrola is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Iberdrola (1 is concerning!) that you should be aware of before investing. Is Iberdrola not quite the opportunity you were looking for? Why not check out our selection of top 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.
About BME:IBE
Iberdrola
Engages in the generation, transmission, distribution, and supply of electricity in Spain, the United Kingdom, the United States, Mexico, Brazil, Germany, France, and Australia.
Proven track record average dividend payer.
