Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Jersey Electricity plc (LON:JEL) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 20th of February to receive the dividend, which will be paid on the 26th of March.
Jersey Electricity’s upcoming dividend is UK£0.092 a share, following on from the last 12 months, when the company distributed a total of UK£0.20 per share to shareholders. Looking at the last 12 months of distributions, Jersey Electricity has a trailing yield of approximately 4.2% on its current stock price of £4.72. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to investigate whether Jersey Electricity can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Jersey Electricity
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Jersey Electricity paid out 51% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 34% of its free cash flow in the past year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see how much of its profit Jersey Electricity paid out over the last 12 months.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Jersey Electricity’s earnings per share have been growing at 19% a year for the past five years. Jersey Electricity is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Jersey Electricity has increased its dividend at approximately 7.2% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Should investors buy Jersey Electricity for the upcoming dividend? We like Jersey Electricity’s growing earnings per share and the fact that – while its payout ratio is around average – it paid out a lower percentage of its cash flow. There’s a lot to like about Jersey Electricity, and we would prioritise taking a closer look at it.
Want to learn more about Jersey Electricity? Here’s a visualisation of its historical rate of revenue and earnings growth.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
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