New Jersey Resources (NYSE:NJR) Is Increasing Its Dividend To $0.42

The board of New Jersey Resources Corporation (NYSE:NJR) has announced that the dividend on 2nd of October will be increased to $0.42, which will be 7.7% higher than last year's payment of $0.39 which covered the same period. This takes the annual payment to 3.7% of the current stock price, which is about average for the industry.

Check out our latest analysis for New Jersey Resources

New Jersey Resources' Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, New Jersey Resources was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 7.5% over the next year. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

New Jersey Resources Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the annual payment back then was $0.80, compared to the most recent full-year payment of $1.56. This implies that the company grew its distributions at a yearly rate of about 6.9% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

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. The company has been growing at a pretty soft 3.4% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On New Jersey Resources' Dividend

Overall, we always like to see the dividend being raised, but we don't think New Jersey Resources will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for New Jersey Resources (1 is concerning!) that you should be aware of before investing. Is New Jersey Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.