The board of Jacobs Engineering Group Inc. (NYSE:J) has announced that it will be increasing its dividend on the 25th of March to US$0.23. This takes the annual payment to 0.7% of the current stock price, which unfortunately is below what the industry is paying.
Jacobs Engineering Group's Dividend Is Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end. However, Jacobs Engineering Group's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 189.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 16% by next year, which is in a pretty sustainable range.
Jacobs Engineering Group Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. Since 2017, the dividend has gone from US$0.60 to US$0.92. This implies that the company grew its distributions at a yearly rate of about 8.9% over that duration. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 3.4% a year for the past five years, which isn't massive but still better than seeing them shrink. If Jacobs Engineering Group is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Jacobs Engineering Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.