Don't Buy EQT Holdings Limited (ASX:EQT) For Its Next Dividend Without Doing These Checks

EQT Holdings Limited (ASX:EQT) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 3rd of March in order to receive the dividend, which the company will pay on the 23rd of March.

EQT Holdings's next dividend payment will be AU$0.44 per share, on the back of last year when the company paid a total of AU$0.90 to shareholders. Calculating the last year's worth of payments shows that EQT Holdings has a trailing yield of 3.5% on the current share price of A$25.9. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for EQT Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year EQT Holdings paid out 103% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

Click here to see how much of its profit EQT Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about EQT Holdings's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, five years ago, EQT Holdings has lifted its dividend by approximately 5.8% a year on average.

To Sum It Up

Should investors buy EQT Holdings for the upcoming dividend? EQT Holdings has an uncomfortably high payout ratio, and its earnings have not grown at all. EQT Holdings doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that being said, if you're still considering EQT Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for EQT Holdings you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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