EQT Holdings Limited (ASX:EQT) will increase its dividend from last year's comparable payment on the 10th of October to A$0.49. This takes the annual payment to 3.8% of the current stock price, which is about average for the industry.

Check out our latest analysis for EQT Holdings

EQT Holdings Is Paying Out More Than It Is Earning

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend made up a very large portion of earnings and also represented 78% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Over the next year, EPS is forecast to expand by 38.0%. If the dividend continues on its recent course, the payout ratio in 12 months could be 113%, which is a bit high and could start applying pressure to the balance sheet. historic-dividend

EQT Holdings Doesn't Have A Long Payment History

EQT Holdings' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2015, the dividend has gone from A$0.68 total annually to A$0.98. This works out to be a compound annual growth rate (CAGR) of approximately 5.4% a year over that time. EQT Holdings has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

EQT Holdings May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 4.8% per year. EQT Holdings' earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.



We should note that EQT Holdings has issued stock equal to 19% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, we always like to see the dividend being raised, but we don't think EQT Holdings will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think EQT Holdings 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 Holdings 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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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.

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