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

The board of Avi-Tech Holdings Limited (SGX:1R6) has announced that it will pay a dividend of SGD0.01 per share on the 28th of November. This means the annual payment is 6.6% 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 Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't 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.

If the company can't turn things around, EPS could fall by 7.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 103%, which could put the dividend in jeopardy if the company's earnings don't improve.

Avi-Tech Holdings' Dividend Has Lacked Consistency

It's comforting to see that Avi-Tech Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2015, the dividend has gone from SGD0.012 total annually to SGD0.0175. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Avi-Tech Holdings' EPS has declined at around 7.7% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Avi-Tech Holdings has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.