Yesterday, EQB Inc (TSX: EQB) released its third quarter earnings. The company easily surpassed analyst estimates with $2.96 in earnings per share (EPS), $0.07 ahead of estimates, and a 24% year-over-year (y/y) dividend increase to $0.47 per quarter, or $1.88 per year. On a quarter-over-quarter (q/q) basis, the dividend hike was 4.4%.
So we’ve got EQB paying $1.88 in annual dividends, a new record. With its $96.61 stock price, EQB still only yields 2%. However, the dividend growth combined with the company’s earnings beat and continued growth signalled good things for EQB shareholders overall. In this article, I will explore the digital bank’s earnings and newly higher dividend, and what they mean for shareholders.
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Earnings recap
EQB Inc’s most recent earnings release was a major beat, delivering metrics like:
- $327 million in revenue, up 15% year over year.
- $2.96 in adjusted diluted EPS, up 3.5%.
- $2.84 in reported EPS.
- A 15.9% return on equity.
Overall, it was a pretty good showing. The company’s change of reporting periods makes it hard to compare this year’s results to last year’s (it reported 10-month’s worth of results for the period ending in last year’s October quarter, which included last year’s June quarter). However, I was able to find a third party data provider that claimed that EQB’s diluted EPS in last year’s June quarter was $2.86. If that source is reliable, then EPS increased 3.5% – less than revenue, but still an appreciable increase. Taking last quarter as the starting period, earnings grew 5.5%; so, the 4.4% q/q dividend increase was well supported by earnings growth.
About the low yield
EQB’s dividend yield is technically pretty low. However, it’s important to note that this is a growth company, and you don’t typically buy such companies for their dividends. You buy them, rather, for their ability to compound and grow earnings over time. Typically, such growth and compounding eventually translate into stock price appreciation.
Nevertheless, EQB’s yield, to those investors buying today, could grow higher over time. The company’s dividend has compounded at 23.4% per year over the last five years. At that rate, it doubles every three and a half years! Now, I’m not saying that such blisteringly fast growth can be maintained going forward, but if the dividend grows at even 10% per year going forward, then today’s investors will be rewarded.
High margins
Another thing that EQB has going for it is high margins. Last quarter, EQB earned $117.2 million in net income on $327.2 million in revenue. That’s a 35.8% net margin, which is above average for a Canadian bank this year. In the trailing 12-month period, the bank had a 39% net margin and a 12.5% return on equity. Both very good numbers.
Foolish takeaway
Should you buy EQB stock because of its $1.88 dividend? The dividend growth doesn’t hurt, but it’s not the main reason to buy the stock. What’s really impressive with EQB is the long-term growth and compounding. If the company can keep it up, it may be paying even more dividends in the future.
