South Jersey Industries, Inc. ( SJI - Snapshot Report ) is a strong, stable business with a history of rewarding its shareholders with dividend increases. True to form, the company recently announced an 11% hike in its quarterly dividend, marking the 12th consecutive year of an increase.

SJI also recently reported a strong third quarter, and management reiterated its guidance for the rest of 2010. Analysts revised their estimates higher for both 2010 and 2011, sending the stock to a Zacks #2 Rank (Buy) stock.

About SJI

SJI operates several different utilities, its largest being South Jersey Gas Company (SJG). SJG purchases, transmits, and sells natural gas for residential, commercial and industrial use.

Third Quarter Results

SJI reported earnings from continuing operations of 10 cents per share, well above the Zacks Consensus Estimate of 1 cent. SJI lost 6 cents per share in the same quarter in 2009.

Total revenues increased 26.4% year-over-year. This was driven by 46.0% growth in non-utility revenues as the company was the successful bidder to supply retail electricity to over 400 school districts in New Jersey.

The operating margin improved from a razor-thin 0.1% to a slightly less razor-thin 0.3%. This small change led to a 532% increase in operating income.

Outlook

Following the solid quarter, management reiterated its guidance of 5% to 10% growth in earnings per share for 2010.

The Zacks Consensus Estimate for 2010 is $2.65, representing 11% EPS growth over 2009. The 2011 estimate is currently $3.03, equating to 14% EPS growth.

Dividend

South Jersey Industries has a stated goal of achieving at least 6% to 7% growth in the dividend and a payout ratio between 50% and 60%.

Since 2000, the company has raised its dividend at a compound annual growth rate of 6.1%, meeting its goal. It payout ratio is currently 50%, also within the company's target.

A payout ratio between 50% and 60% is typical for a utility company. For instance, Chesapeake Utilities Corp (CPK) has a payout ratio of 49%, Exelon Corp (EXC) is at 54%, and American Electric Power (AEP) pays out 53%.

SJI also recently announced an 11% increase in its dividend to 36.5 cents per share. It has a dividend yield of 2.8%.

Valuation

Shares have risen over 40% in the past 12 months as yield-hungry investors flock to SJI (and other utilities). Valuation has risen a bit too, with shares trading at 19.8x forward earnings, a premium to the industry average of 16.1x. Its price to sales ratio of 1.8 is also higher than its peers at 1.0.

Given the double-digit growth rates expected in 2010 and 2011, however, these premiums appear to be justified.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.