Equatorial (BVMF:EQTL3) Will Pay A Larger Dividend Than Last Year At R$0.9554

Equatorial S.A. (BVMF:EQTL3) will increase its dividend from last year's comparable payment on the 1st of January to R$0.9554. Despite this raise, the dividend yield of 2.3% is only a modest boost to shareholder returns.

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Equatorial's Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. However, Equatorial's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 84.5%. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Equatorial

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was R$0.154 in 2015, and the most recent fiscal year payment was R$0.789. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Equatorial May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Equatorial's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Equatorial's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Equatorial that investors should know about before committing capital to this stock. Is Equatorial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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