Jersey Electricity (LON:JEL) Will Pay A Larger Dividend Than Last Year At £0.108

Jersey Electricity plc (LON:JEL) has announced that it will be increasing its dividend from last year's comparable payment on the 23rd of March to £0.108. This takes the annual payment to 4.6% of the current stock price, which is about average for the industry.

See our latest analysis for Jersey Electricity

Jersey Electricity's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before this announcement, Jersey Electricity was paying out 85% of earnings, but a comparatively small 71% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Unless the company can turn things around, EPS could fall by 4.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 75%, which we consider to be quite comfortable, even though the current levels are slightly more elevated.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from £0.11 total annually to £0.23. This means that it has been growing its distributions at 7.7% per annum over that time. 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.

Jersey Electricity May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Jersey Electricity has seen earnings per share falling at 4.7% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On Jersey Electricity's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Jersey Electricity's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. 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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