Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Avi-Tech Electronics Limited (SGX:BKY) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 13th of November, you won’t be eligible to receive this dividend, when it is paid on the 29th of November.
Avi-Tech Electronics’s next dividend payment will be S$0.01 per share, and in the last 12 months, the company paid a total of S$0.02 per share. Last year’s total dividend payments show that Avi-Tech Electronics has a trailing yield of 6.1% on the current share price of SGD0.375. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Avi-Tech Electronics can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Avi-Tech Electronics is paying out an acceptable 66% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (58%) of its free cash flow in the past year, which is within an average range for most companies.
It’s positive to see that Avi-Tech Electronics’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Avi-Tech Electronics’s earnings per share have been growing at 15% a year for the past five years. Avi-Tech Electronics is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Avi-Tech Electronics has delivered an average of 1.4% per year annual increase in its dividend, based on the past ten years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Avi-Tech Electronics is keeping back more of its profits to grow the business.
The Bottom Line
Is Avi-Tech Electronics worth buying for its dividend? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we’d also note that Avi-Tech Electronics is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Keen to explore more data on Avi-Tech Electronics’s financial performance? Check out our visualisation of its historical revenue and earnings growth.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.