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The board of EQT Corporation (NYSE:EQT) has announced that it will pay a dividend on the 3rd of March, with investors receiving $0.1575 per share. Including this payment, the dividend yield on the stock will be 1.2%, which is a modest boost for shareholders' returns.
See our latest analysis for EQT
EQT's Projected Earnings Seem Likely To Cover Future Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend made up a very large portion of earnings and also represented 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.12 in 2015 to the most recent total annual payment of $0.63. This means that it has been growing its distributions at 18% per annum over that time. 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.
EQT's Dividend Might Lack Growth
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. EQT has impressed us by growing EPS at 51% per year over the past five years. However, EQT isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
An additional note is that the company has been raising capital by issuing stock equal to 45% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Our Thoughts On EQT's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Strong earnings growth means EQT has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.