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Public Service Enterprise Group's (NYSE:PEG) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Public Service Enterprise Group Incorporated (NYSE:PEG) has announced that the dividend on 29th of March will be increased to $0.60, which will be 5.3% higher than last year's payment of $0.57 which covered the same period. This makes the dividend yield about the same as the industry average at 3.8%.

See our latest analysis for Public Service Enterprise Group

Public Service Enterprise Group's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Public Service Enterprise Group's dividend was only 40% of earnings, however it was paying out 154% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

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Looking forward, earnings per share is forecast to fall by 25.2% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 57%, which is comfortable for the company to continue in the future.

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Public Service Enterprise Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $1.44, compared to the most recent full-year payment of $2.28. This works out to be a compound annual growth rate (CAGR) of approximately 4.7% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Public Service Enterprise Group has grown earnings per share at 5.3% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Public Service Enterprise Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Public Service Enterprise Group (of which 2 don't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.