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The board of New Jersey Resources Corporation (NYSE:NJR) has announced that it will pay a dividend on the 3rd of October, with investors receiving $0.3625 per share. This means that the annual payment will be 3.2% of the current stock price, which is in line with the average for the industry.
New Jersey Resources' Earnings Easily Cover The Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, New Jersey Resources' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 22.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 56% by next year, which is in a pretty sustainable range.
New Jersey Resources Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the annual payment back then was $0.76, compared to the most recent full-year payment of $1.45. This works out to be a compound annual growth rate (CAGR) of approximately 6.7% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. New Jersey Resources hasn't seen much change in its earnings per share over the last five years. Growth of 0.3% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about New Jersey Resources' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for New Jersey Resources (1 shouldn't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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