EQT Holdings Limited's (ASX:EQT) dividend will be increasing to AU$0.48 on 29th of March. The announced payment will take the dividend yield to 3.5%, which is in line with the average for the industry.

View our latest analysis for EQT Holdings

EQT Holdings' Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last payment made up 82% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 12.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 75%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high. historic-dividend

EQT Holdings Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2016, the first annual payment was AU$0.68, compared to the most recent full-year payment of AU$0.96. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. 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 Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. EQT Holdings has seen EPS rising for the last five years, at 11% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On EQT Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think EQT Holdings will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for EQT Holdings that investors should take into consideration. Is EQT Holdings 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.