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

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 €0.3272. The payment will take the dividend yield to 3.8%, which is in line with the average for the industry.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Iberdrola's Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Iberdrola's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 132% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

The next year is set to see EPS grow by 45.2%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 57% which brings it into quite a comfortable range.

See our latest analysis for Iberdrola

Iberdrola Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from €0.03 total annually to €0.635. This means that it has been growing its distributions at 36% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Iberdrola has been growing its earnings per share at 5.6% a year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Iberdrola will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Iberdrola that investors should take into consideration. Is Iberdrola not quite the opportunity you were looking for? Why not check out our selection of top 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.