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Should Income Investors Look At Avi-Tech Electronics Limited (SGX:BKY) Before Its Ex-Dividend?

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Simply Wall St
·4 min read
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Avi-Tech Electronics Limited (SGX:BKY) is about to trade ex-dividend in the next 1 days. You will need to purchase shares before the 29th of April to receive the dividend, which will be paid on the 15th of May.

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$0.025 per share. Based on the last year's worth of payments, Avi-Tech Electronics stock has a trailing yield of around 6.9% on the current share price of SGD0.36. If you buy this business for its dividend, you should have an idea of whether Avi-Tech Electronics's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Avi-Tech Electronics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Avi-Tech Electronics paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Avi-Tech Electronics generated enough free cash flow to afford its dividend. Fortunately, it paid out only 45% of its free cash flow in the past year.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

SGX:BKY Historical Dividend Yield April 27th 2020
SGX:BKY Historical Dividend Yield April 27th 2020

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. This is why it's a relief to see Avi-Tech Electronics earnings per share are up 4.3% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, Avi-Tech Electronics has increased its dividend at approximately 2.3% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Avi-Tech Electronics an attractive dividend stock, or better left on the shelf? While earnings per share growth has been modest, Avi-Tech Electronics's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. To summarise, Avi-Tech Electronics looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in Avi-Tech Electronics for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Avi-Tech Electronics that you should be aware of before investing in their shares.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.