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The board of EQT Corporation (NYSE:EQT) has announced that it will pay a dividend of $0.1575 per share on the 2nd of December. This payment means the dividend yield will be 1.7%, which is below the average for the industry.
View our latest analysis for EQT
EQT's Projected Earnings Seem Likely To Cover Future Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, EQT was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 88% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.
The next year is set to see EPS grow by 131.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was $0.12, compared to the most recent full-year payment of $0.63. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. EQT has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
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. EQT has seen EPS rising for the last five years, at 50% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
We should note that EQT has issued stock equal to 44% of shares outstanding. 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, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.