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There is a lot to be liked about Red Eléctrica Corporación SA (BME:REE) as an income stock. It has paid dividends over the past 10 years. The stock currently pays out a dividend yield of 5.0%, and has a market cap of €9.7b. Should it have a place in your portfolio? Let’s take a look at Red Eléctrica Corporación in more detail.

See our latest analysis for Red Eléctrica Corporación

Here’s how I find good dividend stocks

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Does it pay an annual yield higher than 75% of dividend payers?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share amount increased over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

How well does Red Eléctrica Corporación fit our criteria?

The current trailing twelve-month payout ratio for the stock is 52%, which means that the dividend is covered by earnings. Going forward, analysts expect REE’s payout to increase to 80% of its earnings, which leads to a dividend yield of 5.7%. In addition to this, EPS should increase to €1.32. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of REE it has increased its DPS from €0.27 to €0.92 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.

In terms of its peers, Red Eléctrica Corporación has a yield of 5.0%, which is high for Electric Utilities stocks.

Next Steps:

Taking into account the dividend metrics, Red Eléctrica Corporación ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three fundamental factors you should further examine: