New Jersey Resources (NYSE:NJR) Will Pay A Dividend Of $0.45

The board of New Jersey Resources Corporation (NYSE:NJR) has announced that it will pay a dividend of $0.45 per share on the 2nd of January. This takes the annual payment to 3.5% of the current stock price, which is about average for the industry.

See our latest analysis for New Jersey Resources

New Jersey Resources' Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, New Jersey Resources was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

The next year is set to see EPS grow by 37.1%. If the dividend continues on this path, the payout ratio could be 57% by next year, which we think can be pretty sustainable going forward.

New Jersey Resources Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the dividend has gone from $0.84 total annually to $1.80. This works out to be a compound annual growth rate (CAGR) of approximately 7.9% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. New Jersey Resources has impressed us by growing EPS at 9.3% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

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 New Jersey Resources is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for New Jersey Resources you should be aware of, and 1 of them is a bit concerning. Is New Jersey Resources 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.