Last update on 2024-06-28

Iberdrola (0HIT.IL) - Dividend Analysis (Final Score: 5/8)

Analyze Iberdrola's (0HIT.IL) dividend performance with a thorough assessment, scoring 5/8 based on 8 criteria, for insights into stability and yield trends.

Short Analysis - Dividend Score: 5

We're running Iberdrola (0HIT.IL) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

This analysis reviews the performance and stability of Iberdrola's dividend policy based on 8 criteria. 1. **Dividend Yield**: Iberdrola's dividend yield (4.2821%) is above the industry average (3.75%) indicating a strong performance. 2. **Dividend Growth Rate**: The growth rate shows inconsistency with an overall average of -10.25925%, indicating instability and unreliability in dividend payments over the last 20 years. 3. **Payout Ratio**: With an average payout ratio of 12.82%, Iberdrola exhibits a conservative dividend approach, maintaining sustainability. 4. **Dividends Covered by Earnings**: Dividends are not fully covered by earnings as the coverage ratio is below 1, indicating more dividends paid out than earnings, which is risky. 5. **Dividends Covered by Cash Flow**: Evaluating if dividends are covered by free cash flow is key for sustaining dividend levels (specific data needed). 6. **Stable Dividends**: Significant volatility noted with multiple years of no dividends (2014-2020), exceeding acceptable stability thresholds. 7. **Dividend History**: Iberdrola has not consistently paid dividends over the past 25 years; there were several years without dividends. 8. **Stock Repurchases**: Important for future prospects, increased EPS, and investor confidence (specific data on repurchases needed).

Insights for Value Investors Seeking Stable Income

Based on this analysis, Iberdrola exhibits strengths in dividend yield and payout ratio but has notable weaknesses in dividend growth rate, stability, and coverage by earnings. The inconsistency in the dividend history, particularly with several years without payouts, is a red flag for investors seeking reliable income. Unless the concerning trends show improvement and more data on dividends covered by free cash flow and reliable stock repurchases become available, Iberdrola might not be the best option for income-focused investors. A cautious approach is recommended.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

A company's dividend yield is a financial ratio that shows how much it pays out in dividends each year relative to its stock price. It is an important measure for income-focused investors.

Iberdrola's current dividend yield of 4.2821% is notably higher than the industry average of 3.75%. This trend, particularly in recent years, indicates an improved payout strategy. While the dividend yield was nonexistent for a long period until 2021, the significant hikes over the past three years (from 2.4926% in 2021 to 4.2821% in 2023) underscore Iberdrola's enhanced financial health and commitment to returning value to shareholders. Given the industry averages, which have fluctuated more but not surpassed 5.11% the same timescale, Iberdrola's trend is a positive sign of robust performance.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend over time. It is a crucial measure for income-focused investors as it indicates the sustainability and potential increase in future dividend payments.

The current data reveals inconsistent dividend payout ratios for Iberdrola (0HIT.IL) over the past decades. A deep dip into negative values followed by several years of no dividends shows volatility. Specifically, years like 2022 saw a sharp recovery with a 76.77% increase. However, calculating an overall average of -10.25925% over the period, which is significantly below the 5% growth rate threshold required for a good dividend growth trend, clearly indicates instability. This current trend is troubling for dividend-focused investors, suggesting unreliability in dividend payments.

Average annual Payout Ratio lower than 65% in the last 20 years?

The average payout ratio is a measure of the proportion of earnings paid out as dividends to shareholders, which is important for assessing dividend sustainability.

The average payout ratio for Iberdrola over the provided period is 12.82%, which is significantly lower than the 65% threshold. This generally indicates that Iberdrola has a conservative approach to paying dividends, retaining a majority of its earnings for reinvestment or other uses. The values climbed sharply in the last three years, reaching over 65% in 2022 and 2023, but the overall average remains well below the limit. This trend is good as it shows prudence in the company’s dividend policy, ensuring long-term sustainability and financial health.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

Over the years, Iberdrola's earnings per share (EPS) has shown a gradual increase, starting from 0 in 2010 to a sleek 0.7468 in 2023. This positive trajectory in EPS suggests that the company is growing financially. However, the dividend per share (DPS) trend is a bit intricate; it remains zero for several years until it picks up from 2017 onwards. More critically, the ratio of dividends covered by earnings per share was zero up until 2020, indicating that dividends were not sustainable based on earnings. From 2021 to 2023, the coverage ratios are 0.43, 0.69, and 0.67, respectively. A coverage ratio below 1 indicates that Iberdrola has been paying more dividends than its earnings, posing a risk to dividend sustainability. Although the dividends coverage by earnings did improve, gradually it's still not reaching a safe threshold of 1, implying the dividends are not well-covered by earnings. It's a red flag in a growing EPS context.

Dividends Well Covered by Cash Flow?

Explain dividends covered by free cash flow and why it is important to consider.

When evaluating a company’s ability to pay dividends, it’s critical to assess whether its free cash flow (FCF)—the cash generated by operations minus capital expenditures—adequately covers its dividend payouts. A lower ratio suggests potential issues in sustainably maintaining dividend levels.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Upon reviewing Iberdrola's dividend history over the past 20 years, we can notice significant volatility in 2013 when the dividend per share dropped to 0.03 EUR from 0.173 EUR in 2012, a drop of more than 80% which significantly exceeds the 20% threshold. Furthermore, since 2014 until 2020, the company did not distribute any dividends. However, from 2021 onwards, Iberdrola resumed its dividend payments, presenting figures of 0.254 EUR, 0.449 EUR, and 0.501 EUR for 2021, 2022, and 2023, respectively. Thus, while recent years have shown a recovery and a growing trend in dividends, the earlier years displayed considerable instability. For income-seeking investors, such historical volatility and incremental climb may signal a cautious consideration.

Dividends Paid for Over 25 Years?

Evaluating whether a company has consistently paid dividends for 25 years helps determine its reliability, sustainability, and long-term financial health.

According to the provided data, Iberdrola (0HIT.IL) has not consistently paid dividends over the past 25 years. Notably, dividends were paid in 2010 (0.336), 2011 (0.176), 2012 (0.173), 2013 (0.03), 2022 (0.449), and 2023 (0.501), but there were several years in between where dividends were not paid at all (2014 to 2021). This inconsistency can be seen as a negative trend, indicating potential financial instability or prioritization of other investments over returning value to shareholders. For investors seeking stable and reliable dividend-paying stocks, this might be a red flag. The trend shows recovery in recent years, but the lack of consistent dividends over the given years is concerning for those evaluating the company’s historical dividend performance.

Reliable Stock Repurchases Over the Past 20 Years?

Explain why reliable stock repurchases are important for a company like Iberdrola.

Stock repurchases are an essential indicator of a company’s confidence in its future prospects. When a company buys back its shares, it reduces the number of shares outstanding, thereby increasing the earnings per share (EPS) for existing shareholders. Moreover, repurchases can positively impact the stock price, increase return on equity (ROE), and offer additional flexibility in capital management. Furthermore, consistent buybacks signal to the market that the company believes its stock is undervalued, thereby building investor confidence.