Jersey Electricity (LON:JEL) Has Announced That It Will Be Increasing Its Dividend To UK£0.076

Jersey Electricity plc (LON:JEL) will increase its dividend on the 21st of June to UK£0.076. Based on the announced payment, the dividend yield for the company will be 3.3%, which is fairly typical for the industry.

View our latest analysis for Jersey Electricity

Jersey Electricity's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend was quite easily covered by Jersey Electricity's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS could expand by 1.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from UK£0.11 in 2012 to the most recent annual payment of UK£0.22. This implies that the company grew its distributions at a yearly rate of about 7.3% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Jersey Electricity might have put its house in order since then, but we remain cautious.

The Dividend's Growth Prospects Are Limited

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 is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Jersey Electricity's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 picked out 2 warning signs for Jersey Electricity that investors should know about before committing capital to this stock. 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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