Jersey Electricity plc (LON:JEL) has pleased shareholders over the past 10 years, by paying out dividends. The company is currently worth UK£139m, and now yields roughly 3.3%. Does Jersey Electricity tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Jersey Electricity pass our checks?
Jersey Electricity has a trailing twelve-month payout ratio of 38%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 49% which, assuming the share price stays the same, leads to a dividend yield of around 3.6%. However, EPS is forecasted to fall to £0.35 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. JEL has increased its DPS from £0.092 to £0.15 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes JEL a true dividend rockstar.
Compared to its peers, Jersey Electricity produces a yield of 3.3%, which is on the low-side for Electric Utilities stocks.
Taking into account the dividend metrics, Jersey Electricity ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three key factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for JEL’s future growth? Take a look at our free research report of analyst consensus for JEL’s outlook.
- Valuation: What is JEL worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether JEL is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.