Iberdrola's (BME:IBE) Dividend Will Be €0.1912

The board of Iberdrola, S.A. (BME:IBE) has announced that it will pay a dividend of €0.1912 per share on the 23rd of January. This takes the annual payment to 2.5% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Iberdrola

Iberdrola's Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Iberdrola's dividend was only 58% of earnings, however it was paying out 97% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to fall by 11.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 62%, 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Iberdrola has impressed us by growing EPS at 15% 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.

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 the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Iberdrola (1 shouldn't be ignored!) 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.

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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.