Don't Race Out To Buy IDACORP, Inc. (NYSE:IDA) Just Because It's Going Ex-Dividend

IDACORP, Inc. (NYSE:IDA) stock is about to trade ex-dividend in four days. 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 IDACORP's shares before the 4th of August to receive the dividend, which will be paid on the 31st of August.

The company's upcoming dividend is US$0.71 a share, following on from the last 12 months, when the company distributed a total of US$2.84 per share to shareholders. Last year's total dividend payments show that IDACORP has a trailing yield of 2.7% on the current share price of $105.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether IDACORP has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for IDACORP

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. IDACORP paid out 57% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. IDACORP paid out more free cash flow than it generated - 132%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While IDACORP's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were IDACORP to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see IDACORP earnings per share are up 4.5% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. IDACORP has delivered 9.0% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Has IDACORP got what it takes to maintain its dividend payments? IDACORP is paying out a reasonable percentage of its income and an uncomfortably high 132% of its cash flow as dividends. At least earnings per share have been growing steadily. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering IDACORP as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for IDACORP that we recommend you consider before investing in the business.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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