EQT (STO:EQT) Will Pay A Dividend Of €1.80

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 1.0% 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

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, the company was paying out 127% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 45%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS is forecast to grow rapidly. Assuming the dividend continues along recent trends, we could see the payout ratio reach 278%, which is on the unsustainable side.

EQT's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 4 years was €0.206 in 2020, and the most recent fiscal year payment was €0.306. This implies that the company grew its distributions at a yearly rate of about 10% 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.

Dividend Growth May Be Hard To Achieve

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. However, EQT has only grown its earnings per share at 2.4% per annum over the past five years. The earnings growth is anaemic, and the company is paying out 127% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

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 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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.

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