Jersey Electricity plc (LON:JEL) the periodic dividend will increase on March 23 to £0.108, with investors receiving 5.9% more than £0.102 last year. This brings the annual payment to 3.7% of the current share price, which is about the industry average.
See our latest analysis of Jersey Electricity
Jersey Electricity’s dividends are well covered by earnings
Solid dividend yields are great, but they only really help us if the payout is sustainable. Prior to this announcement, Jersey Electricity’s dividend accounted for a fairly large proportion of earnings, but only 56% of free cash flow. Since the dividend is only paid in cash to shareholders, we are more concerned with the cash payout ratio from which we can see that there is a lot left to reinvest in the business.
Looking ahead, EPS could fall 4.7% if the company can’t turn things around in recent years. Assuming the dividend continues recent trends, the 12-month payout rate could be 75%, which is more comfortable than the current payout rate.
While the company has been paying dividends for a long time, it has cut the dividend at least once in the last 10 years. The annual payment for the last 10 years was £0.11 in 2013, and the most recent tax year payment was £0.184. This implies that the company increased its distributions at an annual rate of about 5.3% during that period. We’ve seen cuts in the past, so while the growth looks promising, we’d be a little cautious on its track record.
Dividend growth prospects are limited
The increase in earnings per share could be a mitigating factor when considering past fluctuations in the dividend. Over the past five years, Jersey Electricity’s earnings per share have declined by about 4.7% per year. If earnings continue to fall, the company may have to make the difficult decision to cut the dividend or even stop it altogether, the opposite of dividend growth.
Our thoughts on the Jersey Electricity dividend
Overall, this is probably not a great income stock, even though the dividend is rising right now. Payouts have been erratic in the past, but in the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don’t think this company has the ingredients to be a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one that is more unpredictable. Still, investors should consider a number of other factors, in addition to dividend payments, when analyzing a company. As an example, we have identified 2 Warning Signs for Jersey Electricity What to consider before investing. Jersey Electricity not exactly the opportunity you’ve been looking for? Why don’t you take a look at our selection of stocks with higher dividends.
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