Avi-Tech Holdings' (SGX:1R6) Dividend Will Be SGD0.01

Avi-Tech Holdings Limited (SGX:1R6) will pay a dividend of SGD0.01 on the 28th of November. This means the annual payment is 6.9% of the current stock price, which is above the average for the industry.

View our latest analysis for Avi-Tech Holdings

Avi-Tech Holdings Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Avi-Tech Holdings' dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 119% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, EPS could fall by 7.7% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 103%, which is definitely a bit high to be sustainable going forward.

Avi-Tech Holdings' Dividend Has Lacked Consistency

Avi-Tech Holdings has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of SGD0.012 in 2014 to the most recent total annual payment of SGD0.0175. This implies that the company grew its distributions at a yearly rate of about 4.3% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Avi-Tech Holdings' EPS has declined at around 7.7% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Avi-Tech Holdings' payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Avi-Tech Holdings has 4 warning signs (and 2 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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