Jersey Electricity (LON:JEL) Is Paying Out A Larger Dividend Than Last Year

Jersey Electricity plc's (LON:JEL) periodic dividend will be increasing on the 23rd of March to £0.108, with investors receiving 5.9% more than last year's £0.102. This takes the annual payment to 3.7% 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

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Jersey Electricity's dividend made up quite a large proportion of earnings but only 56% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, EPS could fall by 4.7% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be 75%, which is more comfortable than the current payout ratio.

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 annual payment during the last 10 years was £0.11 in 2013, and the most recent fiscal year payment was £0.184. This implies that the company grew its distributions at a yearly rate of about 5.3% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Jersey Electricity's earnings per share has shrunk at approximately 4.7% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Our Thoughts On Jersey Electricity's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over 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 makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Jersey Electricity that you should be aware of before investing. 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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