It’s unusual to find a dividend share that’s also tipped as being undervalued. That’s why such a prospect deserves closer scrutiny.

So let’s take a look at this under-the-radar UK stock that rarely hits the headlines.

What?

Jersey Electricity (LSE:JEL) is responsible for the importation, generation, transmission, and distribution of electricity to 50,000 domestic and commercial customers on the islands of Jersey and Guernsey.

Approximately 95% of the power it supplies comes from France via three undersea cables. The balance is derived from a Jersey-based waste-to-energy plant and a small amount of solar.

As a monopoly, the group doesn’t have to worry about finding new customers. And although it’s a regulated business, it’s allowed to vary its tariffs in line with movements in global energy markets to ensure that it earns a reasonable return on capital.

This means it’s been able to pay a steadily increasing dividend as the chart below shows.

Over the past 10 years, it’s raised its payout between 4.9% and 5.7% per annum.

The cost of Jersey Electricity’s energy purchases is fully hedged for 2026 and substantially hedged for 2027. This helps provide earnings visibility, which is key to maintaining and, hopefully, increasing dividends.

With a current (9 September) share price of 435p, the stock’s yielding an impressive 4.9%. However, experienced investors know that dividends are never guaranteed.

Something else?

But according to one broker, there could be some capital growth too.

Edison reckons the company’s shares are worth 731p each. That’s a 68% premium to today’s price. Based on forecast earnings per share of 40.46p for 2026, this implies a forward price-to-earnings ratio of 18.1. This would bring it in line with that of, for example, SSE.

Of course, this is just one opinion. As a small company – it has a market cap of just over £50m — it doesn’t attract the interest of many analysts.

And there are risks. The group could be heavily penalised by regulators if it fails to keep the lights on. Reliance on a third country for electricity is also a concern.  

In addition, the group’s committed to a £180m five-year capital investment programme, which means it’s vulnerable to rising UK interest rates.

More positively, the group’s recently successfully refinanced and extended its debt facilities.

My view

Although a price target of 731p is based on a sensible earnings multiple, I struggle to see how the stock’s going to get there.

The shares did change hands for around 620p at the end of 2021, when winter energy prices spiked, but with the government of Jersey holding 62% of the company’s shares there are relatively few available to buy. The group has only 600 shareholders.

However, I believe the position’s more clear-cut when it comes to its dividend. Over the past decade, it’s proven itself to be a reliable performer. An investment of £1,000 made at the end of September 2016, would have earned £404 in dividends since then. And with its steady and reasonably predicable earnings, I see no reason why its excellent track record can’t continue.

In my opinion, this makes it one of many high-yielding UK dividend shares to consider today.

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James Beard does not hold any positions in the companies mentioned.