We Wouldn't Be Too Quick To Buy IDACORP, Inc. (NYSE:IDA) Before It Goes Ex-Dividend

It looks like IDACORP, Inc. (NYSE:IDA) is about to go ex-dividend in the next four days. You will need to purchase shares before the 4th of November to receive the dividend, which will be paid on the 30th of November.

IDACORP's next dividend payment will be US$0.71 per share. Last year, in total, the company distributed US$2.84 to shareholders. Last year's total dividend payments show that IDACORP has a trailing yield of 3.2% on the current share price of $88.18. If you buy this business for its dividend, you should have an idea of whether IDACORP's dividend is reliable and sustainable. So we need to investigate whether IDACORP can afford its dividend, and if the dividend could grow.

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 54% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether IDACORP generated enough free cash flow to afford its dividend. It paid out an unsustainably high 222% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

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. Were this to happen repeatedly, this would be a risk to IDACORP's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at IDACORP, with earnings per share up 4.8% on average 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. 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.

Final Takeaway

Should investors buy IDACORP for the upcoming dividend? Earnings per share have grown somewhat, although IDACORP paid out over half its profits and the dividend was not well covered by free cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

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. To help with this, we've discovered 2 warning signs for IDACORP (1 is a bit unpleasant!) that you ought to be aware of before buying the shares.

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.

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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