Avi-Tech Holdings (SGX:1R6) Has Announced A Dividend Of SGD0.0075

The board of Avi-Tech Holdings Limited (SGX:1R6) has announced that it will pay a dividend of SGD0.0075 per share on the 17th of May. This means the annual payment is 6.6% of the current stock price, which is above the average for the industry.

See our latest analysis for Avi-Tech Holdings

Avi-Tech Holdings' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Avi-Tech Holdings was paying out 73% of earnings, but a comparatively small 45% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share could rise by 4.3% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 72% by next year, which we think can be pretty sustainable going forward.

Avi-Tech Holdings' Dividend Has Lacked Consistency

Looking back, Avi-Tech Holdings' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 9 years was SGD0.012 in 2015, and the most recent fiscal year payment was SGD0.0175. This implies that the company grew its distributions at a yearly rate of about 4.3% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Avi-Tech Holdings May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 4.3% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Avi-Tech Holdings' Dividend

Overall, we think Avi-Tech Holdings is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Avi-Tech Holdings you should be aware of, and 1 of them shouldn't be ignored. 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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