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. The dividend yield will be 6.9% based on this payment which is still above the industry average.

Check out our latest analysis for Avi-Tech Holdings

Avi-Tech Holdings' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 95% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

The next year is set to see EPS grow by 82.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Avi-Tech Holdings' Dividend Has Lacked Consistency

Avi-Tech Holdings has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2014, the dividend has gone from SGD0.012 total annually to SGD0.02. This implies that the company grew its distributions at a yearly rate of about 6.6% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Avi-Tech Holdings might have put its house in order since then, but we remain cautious.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Avi-Tech Holdings' EPS has fallen by approximately 15% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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.

We're Not Big Fans Of Avi-Tech Holdings' Dividend

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 2 warning signs for Avi-Tech Holdings you should be aware of, and 1 of them shouldn't be ignored. 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.