Public Service Enterprise Group Incorporated's (NYSE:PEG) dividend will be increasing from last year's payment of the same period to $0.63 on 31st of March. Even though the dividend went up, the yield is still quite low at only 3.1%.

See our latest analysis for Public Service Enterprise Group

Public Service Enterprise Group's Payment Could Potentially Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Public Service Enterprise Group 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 25.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 57%, which is in the range that makes us comfortable with the sustainability of the dividend.

Public Service Enterprise Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was $1.48, compared to the most recent full-year payment of $2.52. This means that it has been growing its distributions at 5.5% per annum 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.

Public Service Enterprise Group May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Public Service Enterprise Group hasn't seen much change in its earnings per share over the last five years. Growth of 1.1% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Public Service Enterprise Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Public Service Enterprise Group will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Public Service Enterprise Group is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Public Service Enterprise Group has 2 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.