Jersey Electricity plc (LON:JEL) has announced that it will be increasing its periodic dividend on the 23rd of March to £0.108, which will be 5.9% higher than last year's comparable payment amount of £0.102. This makes the dividend yield about the same as the industry average at 3.7%.

Check out 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. Prior to this announcement, Jersey Electricity's dividend made up quite a large proportion of earnings but only 56% 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.

Looking forward, EPS could fall by 4.7% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be 75%, which is more comfortable than the current payout ratio. historic-dividend

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from £0.11 total annually to £0.184. This implies that the company grew its distributions at a yearly rate of about 5.3% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend's Growth Prospects Are Limited

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. In the last five years, Jersey Electricity's earnings per share has shrunk at approximately 4.7% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.



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 company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. As an example, we've identified 2 warning signs for Jersey Electricity that you should be aware of before investing. 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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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.

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