Iberdrola's (BME:IBE) Shareholders Will Receive A Bigger Dividend Than Last Year

Iberdrola, S.A.'s (BME:IBE) dividend will be increasing from last year's payment of the same period to €0.1458 on 19th of January. This makes the dividend yield about the same as the industry average at 4.0%.

See our latest analysis for Iberdrola

Iberdrola's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. 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 14.0%. If the dividend continues on this path, the payout ratio could be 56% by next year, which we think can be pretty sustainable going forward.

Iberdrola Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of €0.03 in 2012 to the most recent total annual payment of €0.438. This works out to be a compound annual growth rate (CAGR) of approximately 31% a year over that time. 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

Investors could be attracted to the stock based on the quality of its payment history. Iberdrola has seen EPS rising for the last five years, at 8.1% per annum. 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

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 be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Iberdrola you should be aware of, and 1 of them is a bit unpleasant. 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.