Avi-Tech Electronics Limited (SGX:BKY) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 13th of November in order to receive the dividend, which the company will pay on the 29th of November.
Avi-Tech Electronics's next dividend payment will be S$0.01 per share. Last year, in total, the company distributed S$0.02 to shareholders. Looking at the last 12 months of distributions, Avi-Tech Electronics has a trailing yield of approximately 6.1% on its current stock 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.
Check out our latest analysis for Avi-Tech Electronics
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 paid out more than half (66%) 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. Over the last year it paid out 58% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Avi-Tech Electronics paid out over the last 12 months.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Avi-Tech Electronics's earnings per share have risen 15% per annum over the last 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. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of 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 1.4% dividend growth per year on average over the past ten years. 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.
To Sum It Up
Should investors buy Avi-Tech Electronics for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Avi-Tech Electronics's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 66% and 58% respectively. All things considered, we are not particularly enthused about Avi-Tech Electronics from a dividend perspective.
Want to learn more about Avi-Tech Electronics? Here's a visualisation of its historical rate of revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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.