EQT (STO:EQT) Is 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. This takes the annual payment to 1.2% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for EQT

EQT's Projections Indicate Future Payments May Be Unsustainable

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, EQT's dividend was only 57% of earnings, however it was paying out 98% of free 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.

The next 12 months is set to see EPS grow by 177.1%. 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

EQT has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2020, the dividend has gone from €0.206 total annually to €0.374. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. EQT has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. It's encouraging to see that EQT has been growing its earnings per share at 30% a 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.

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. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 2 warning signs for EQT that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.