There's A Lot To Like About Iberdrola's (BME:IBE) Upcoming €0.1863 Dividend

Readers hoping to buy Iberdrola, S.A. (BME:IBE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Iberdrola's shares before the 10th of January to receive the dividend, which will be paid on the 23rd of January.

The company's next dividend payment will be €0.1863 per share, and in the last 12 months, the company paid a total of €0.58 per share. Calculating the last year's worth of payments shows that Iberdrola has a trailing yield of 4.2% on the current share price of €13.75. If you buy this business for its dividend, you should have an idea of whether Iberdrola's dividend is reliable and sustainable. As a result, readers should always check whether Iberdrola has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Iberdrola

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Iberdrola paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 43% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Iberdrola's earnings per share have been growing at 18% a year for the past five years. Iberdrola is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Iberdrola has delivered 34% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Iberdrola worth buying for its dividend? Iberdrola's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Iberdrola, and we would prioritise taking a closer look at it.

In light of that, while Iberdrola has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 4 warning signs with Iberdrola (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.