Jersey Electricity's (LON:JEL) Upcoming Dividend Will Be Larger Than Last Year's
The board of Jersey Electricity plc (LON:JEL) has announced that it will be increasing its dividend by 5.6% on the 15th of March to £0.114, up from last year's comparable payment of £0.108. This takes the annual payment to 4.3% of the current stock price, which is about average for the industry.
View our latest analysis for Jersey Electricity
Jersey Electricity's Dividend Is Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Jersey Electricity's dividend was only 53% of earnings, however it was paying out 129% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, EPS could fall by 1.4% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 56%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of £0.113 in 2014 to the most recent total annual payment of £0.194. This implies that the company grew its distributions at a yearly rate of about 5.6% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Jersey Electricity's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
Jersey Electricity's Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Jersey Electricity you should be aware of, and 1 of them shouldn't be ignored. Is Jersey Electricity not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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