EQT (STO:EQT) Is Due To Pay A Dividend Of €2.15

The board of EQT AB (publ) (STO:EQT) has announced that it will pay a dividend on the 4th of December, with investors receiving €2.15 per share. Despite this raise, the dividend yield of 1.2% is only a modest boost to shareholder returns.

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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 was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next 12 months is set to see EPS grow by 123.7%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

View our latest analysis for EQT

EQT's Dividend Has Lacked Consistency

Looking back, EQT's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of €0.206 in 2020 to the most recent total annual payment of €0.38. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that EQT has been growing its earnings per share at 41% a year over the past five years. EQT is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think EQT will make a great income stock. While EQT is earning enough to cover the payments, the cash flows are lacking. We don't think EQT is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 14 analysts we track are forecasting for EQT for free with public analyst estimates for the company. Is EQT not quite the opportunity you were looking for? Why not check out our selection of top 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.