Avi-Tech Holdings (SGX:1R6) Has Announced A Dividend Of SGD0.01

Avi-Tech Holdings Limited (SGX:1R6) has announced that it will pay a dividend of SGD0.01 per share on the 29th of November. This means the annual payment is 7.1% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Avi-Tech Holdings

Avi-Tech Holdings' Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS is forecast to expand by 82.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 52% which would be quite comfortable going to take the dividend 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. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 8 years was SGD0.012 in 2014, and the most recent fiscal year payment was SGD0.02. This implies that the company grew its distributions at a yearly rate of about 6.6% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Avi-Tech Holdings' earnings per share has shrunk at 15% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Avi-Tech Holdings' Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 3 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.