EQB's Dividend Sustainability and Growth Potential in 2025–2028: A Long-Term Income Stock Analysis

The quest for reliable income-generating investments has become increasingly critical in an era marked by macroeconomic uncertainty. For income-focused investors, EQB Inc. (TSX: EQB) emerges as a compelling candidate, offering a blend of stable earnings, a growing dividend, and a conservative payout ratio. This analysis evaluates EQB's dividend sustainability and growth potential through 2028, drawing on its historical performance, strategic initiatives, and forward-looking guidance.

A Track Record of Dividend Growth and Conservative Payouts

EQB has demonstrated a consistent ability to increase dividends over the past decade, with quarterly payouts rising from CA$0.37 in March 2020 to CA$0.57 in December 2025-a compound annual growth rate (CAGR) of approximately 12%. This trajectory underscores the company's commitment to rewarding shareholders while maintaining financial prudence. As of 2025, the annualized dividend payout of CA$2.20 corresponds to a payout ratio of 31.07% of earnings, a level that balances shareholder returns with capital preservation. This ratio is notably lower than the industry average for Canadian banks, providing a buffer against earnings volatility and ensuring room for future dividend increases.

The current dividend yield of 2.36% positions EQB above the bottom quartile of Canadian dividend payers, making it an attractive option for income seekers. Importantly, the payout ratio's historical trajectory-remaining below 40% even during periods of economic stress-suggests a resilient dividend policy that prioritizes long-term sustainability over short-term maximization.

Earnings Stability and Strategic Resilience

EQB's 2025 results highlight both challenges and opportunities. Adjusted diluted EPS fell 19% year-over-year to CA$8.90, partly due to a CA$92 million pre-tax restructuring charge. However, the company's capital position remains robust, with a CET1 ratio of 13.3% and a total capital ratio of 15.8%, well above regulatory requirements. These metrics reflect EQB's ability to absorb short-term shocks while maintaining a strong foundation for capital returns.

Looking ahead, management has signaled confidence in restoring earnings growth. The restructuring program, though costly in the short term, is designed to enhance efficiency and align resources with high-growth opportunities. By 2026, EQB expects its ROE to approach 12%, a significant improvement from the 11.3% recorded in 2025. This trajectory is supported by strategic initiatives such as the integration of PC Financial and a partnership with Loblow, which are expected to expand EQB's customer base and diversify revenue streams.

Future Dividend Prospects and Capital Allocation Discipline

EQB's dividend policy is underpinned by disciplined capital allocation. In December 2025, the company announced a 16% dividend increase to CA$0.57 per share, reflecting its confidence in earnings resilience. While specific 2026–2028 guidance is not yet provided, management has reiterated its commitment to balancing dividends with share buybacks. For instance, EQB's 2025 Normal Course Issuer Bid (NCIB) resulted in the cancellation of 1.02 million shares, and the program is set to continue in 2026. This dual approach-combining dividends with buybacks-enhances shareholder value while preserving flexibility to navigate economic cycles.

The projected ROE of 12% by 2026 further supports dividend sustainability. A higher ROE implies stronger earnings generation relative to equity, which can fund both dividend growth and capital expenditures. Moreover, EQB's strategic focus on cost management and risk mitigation-evidenced by its restructuring program-positions it to maintain profitability even in a low-growth environment.

Risks and Considerations

While EQB's fundamentals are strong, investors should remain cognizant of potential headwinds. The restructuring program's CA$92 million charge in 2025, coupled with workforce reductions and impairment costs, may temporarily pressure earnings. Additionally, stock price projections for 2026–2028 suggest a decline from current levels, with an average forecast of CA$44.81 in 2026 compared to the current price of CA$69.90. However, these valuations do not directly impact dividend sustainability, as the payout ratio remains well within safe limits.

Conclusion: A Compelling Long-Term Income Play

EQB's combination of a low payout ratio, a history of dividend growth, and a strategic focus on earnings resilience makes it a compelling long-term income stock. The company's ability to navigate short-term challenges while maintaining a strong capital position and disciplined capital returns underscores its appeal to income-focused investors. As EQB advances its strategic initiatives and restores ROE to industry-leading levels, the foundation for sustained dividend growth appears firmly in place. For those seeking a reliable and growing income stream, EQB offers a balanced approach that prioritizes both stability and growth.