It Might Not Be A Great Idea To Buy IDACORP, Inc. (NYSE:IDA) For Its Next Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see IDACORP, Inc. (NYSE:IDA) is about to trade ex-dividend in the next four days. You can purchase shares before the 4th of August in order to receive the dividend, which the company will pay on the 31st of August.
IDACORP's next dividend payment will be US$0.67 per share, on the back of last year when the company paid a total of US$2.68 to shareholders. Based on the last year's worth of payments, IDACORP stock has a trailing yield of around 2.8% on the current share price of $94.78. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
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 is paying out an acceptable 58% of its profit, a common payout level among 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. Over the last year, it paid out dividends equivalent to 261% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how IDACORP intends to continue funding this dividend, or if it could be forced to the payment.
IDACORP paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see IDACORP earnings per share are up 3.2% 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, IDACORP has lifted its dividend by approximately 8.4% a year on average. 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
Is IDACORP an attractive dividend stock, or better left on the shelf? IDACORP is paying out a reasonable percentage of its income and an uncomfortably high 261% of its cash flow as dividends. At least earnings per share have been growing steadily. Bottom line: IDACORP has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of IDACORP don't faze you, it's worth being mindful of the risks involved with this business. For example, IDACORP has 2 warning signs (and 1 which is potentially serious) we think you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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