Avi-Tech Holdings Limited's (SGX:1R6) investors are due to receive a payment of SGD0.01 per share on 28th of November. This makes the dividend yield 6.4%, which will augment investor returns quite nicely.

See our latest analysis for Avi-Tech Holdings

Avi-Tech Holdings Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. At the time of the last dividend payment, Avi-Tech Holdings was paying out a very large proportion of what it was earning and 119% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

If the company can't turn things around, EPS could fall by 7.7% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 103%, which is definitely a bit high to be sustainable going forward.

Avi-Tech Holdings' Dividend Has Lacked Consistency

Looking back, Avi-Tech Holdings' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 8 years was SGD0.012 in 2015, and the most recent fiscal year payment was SGD0.0175. This means that it has been growing its distributions at 4.8% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Avi-Tech Holdings has seen earnings per share falling at 7.7% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Avi-Tech Holdings' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Avi-Tech Holdings' payments, as there could be some issues with sustaining them into the future. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for Avi-Tech Holdings (2 are potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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