Jersey Electricity's (LON:JEL) Dividend Will Be Increased To UK£0.10

Jersey Electricity plc's (LON:JEL) dividend will be increasing on the 24th of March to UK£0.10, with investors receiving 5.2% more than last year. Although the dividend is now higher, the yield is only 2.9%, which is below the industry average.

Check out our latest analysis for Jersey Electricity

Jersey Electricity's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Jersey Electricity's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 28.1%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 48%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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. Since 2011, the dividend has gone from UK£0.11 to UK£0.17. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Jersey Electricity has impressed us by growing EPS at 6.9% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Jersey Electricity that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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