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Avi-Tech Holdings Limited (SGX:1R6) has announced that it will pay a dividend of SGD0.0075 per share on the 26th of November. This means the annual payment is 5.9% of the current stock price, which is above the average for the industry.
See our latest analysis for Avi-Tech Holdings
Estimates Indicate Avi-Tech Holdings' Could Struggle to Maintain Dividend Payments In The Future
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Avi-Tech Holdings' dividend made up quite a large proportion of earnings but only 21% of free cash flows. This leaves plenty of cash for reinvestment into the business.
If the company can't turn things around, EPS could fall by 9.5% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 103%, which could put the dividend under pressure if earnings don't start to improve.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was SGD0.012, compared to the most recent full-year payment of SGD0.015. This means that it has been growing its distributions at 2.3% per annum over that time. 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.
Dividend Growth May Be Hard To Come By
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Avi-Tech Holdings' earnings per share has fallen at approximately 9.5% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
In Summary
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Avi-Tech Holdings is a great stock to add to your portfolio if income is your focus.
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. For example, we've identified 3 warning signs for Avi-Tech Holdings (1 can't be ignored!) that you should be aware of before investing. Is Avi-Tech Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.