EQT (STO:EQT) Has Announced That It Will Be Increasing Its Dividend To €2.15

EQT AB (publ)'s (STO:EQT) dividend will be increasing from last year's payment of the same period to €2.15 on 4th of June. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

See our latest analysis for EQT

Estimates Indicate EQT's Could Struggle to Maintain Dividend Payments In The Future

Even a low dividend yield can be attractive if it is sustained for years on end. The last payment was quite easily covered by earnings, but it made up 98% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Earnings per share is forecast to rise by 177.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

EQT's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The annual payment during the last 5 years was €0.206 in 2020, and the most recent fiscal year payment was €0.374. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that EQT has grown earnings per share at 30% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that EQT could prove to be a strong dividend payer.

In Summary

Overall, we always like to see the dividend being raised, but we don't think EQT will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think EQT is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 2 warning signs for EQT 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.