Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Avi-Tech Holdings Limited (SGX:1R6) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Avi-Tech Holdings' shares on or after the 2nd of May will not receive the dividend, which will be paid on the 17th of May.
The company's next dividend payment will be S$0.0075 per share, on the back of last year when the company paid a total of S$0.017 to shareholders. Based on the last year's worth of payments, Avi-Tech Holdings has a trailing yield of 6.7% on the current stock price of S$0.26. If you buy this business for its dividend, you should have an idea of whether Avi-Tech Holdings's dividend is reliable and sustainable. So we need to investigate whether Avi-Tech Holdings can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Avi-Tech Holdings paid out more than half (73%) of its earnings last year, which is a regular payout ratio for 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 distributed 40% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Avi-Tech Holdings'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.
Click here to see how much of its profit Avi-Tech Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Avi-Tech Holdings's earnings are down 3.5% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, nine years ago, Avi-Tech Holdings has lifted its dividend by approximately 4.3% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
Is Avi-Tech Holdings an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. All things considered, we are not particularly enthused about Avi-Tech Holdings from a dividend perspective.
With that being said, if dividends aren't your biggest concern with Avi-Tech Holdings, you should know about the other risks facing this business. For instance, we've identified 3 warning signs for Avi-Tech Holdings (1 is significant) you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.