EQT Holdings (ASX:EQT) Is Paying Out A Larger Dividend Than Last Year

EQT Holdings Limited (ASX:EQT) has announced that it will be increasing its dividend on the 29th of March to AU$0.48. This takes the annual payment to 3.5% of the current stock price, which is about average for the industry.

See our latest analysis for EQT Holdings

EQT Holdings' Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before this announcement, EQT Holdings was paying out 82% of earnings, but a comparatively small 71% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 12.5%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 75% which would be quite comfortable going to take the dividend forward.

EQT Holdings Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The first annual payment during the last 6 years was AU$0.68 in 2016, and the most recent fiscal year payment was AU$0.96. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider EQT Holdings to be a consistent dividend paying stock.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that EQT Holdings has grown earnings per share at 11% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Our Thoughts On EQT Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think EQT Holdings' payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for EQT Holdings that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.