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The board of EQT Corporation (NYSE:EQT) has announced that it will pay a dividend on the 2nd of June, with investors receiving $0.1575 per share. The dividend yield is 1.2% based on this payment, which is a little bit low compared to the other companies in the industry.
EQT's Future Dividend Projections Appear Well Covered By Earnings
If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, EQT's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
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 22%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Check out our latest analysis for EQT
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 annual payment during the last 10 years was $0.12 in 2015, and the most recent fiscal year payment was $0.63. This implies that the company grew its distributions at a yearly rate of about 18% 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 Could Be Constrained
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 51% a year over the past five years. Although earnings per share is up nicely EQT is paying out 139% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.
We should note that EQT has issued stock equal to 36% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Our Thoughts On EQT's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.