EQT (STO:EQT) Is Due To Pay A Dividend Of €1.80

The board of EQT AB (publ) (STO:EQT) has announced that it will pay a dividend of €1.80 per share on the 5th of December. This takes the annual payment to 1.1% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for EQT

EQT's Future Dividends May Potentially Be At Risk

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, EQT's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to grow rapidly. If the dividend continues along recent trends, we estimate the payout ratio could reach 285%, which is unsustainable.

EQT's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2019, the annual payment back then was €0.206, compared to the most recent full-year payment of €0.306. This implies that the company grew its distributions at a yearly rate of about 8.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. EQT might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 2.4% per annum over the last five years, which admittedly is a bit slow. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. This gives limited room for the company to raise the dividend in the future.

Our Thoughts On EQT's Dividend

In summary, while it's always good to see the dividend being raised, we don't think EQT'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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for EQT that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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