Iberdrola's (BME:IBE) Upcoming Dividend Will Be Larger Than Last Year's

The board of Iberdrola, S.A. (BME:IBE) has announced that it will be paying its dividend of €0.2818 on the 17th of July, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 4.5%, which is in line with the average for the industry.

View our latest analysis for Iberdrola

Iberdrola's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Iberdrola's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 101% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to fall by 4.7%. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be 61%, which is more comfortable than the current payout ratio.

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 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. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Iberdrola Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Iberdrola has seen EPS rising for the last five years, at 15% per annum. 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.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Iberdrola will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Iberdrola has 3 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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