Important Insights Investors Must Know About This Stock’s 8.4% Dividend Yield

Electronics manufacturing services provider Valuetronics Holdings Limited (SGX: BN2) is a share that will likely pop up in the radar of investors who are out looking for high-yielding stocks.

At its current price of S$0.42, the company has a tantalising yield of 8.4% thanks to its annual dividend of HK$0.20 per share (around S$0.0354) in its fiscal year ended 31 March 2015 (FY2015).

In contrast, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the fundamentals of Singapore’s market barometer, the Straits Times Index (SGX: ^STI) – has a yield of ‘just’ 3.4% at the moment.

Let’s take a look at two charts which can give us some important insights about the high-yielding Valuetronic’s dividend.

The first chart showcases the history of Valuetronics’ annual dividends since FY2007 (a longer history isn’t used because the firm had listed only in March 2007):

Chart 1 - Valuetronics' total dividends (ordinary and special) per share

Source: S&P Capital IQ

A key takeaway here is the company’s track record in having paid a dividend consistently in each year after its listing. Despite not having the most stable of dividends (the dividend figure has swung from HK$0.17 per share in FY2012 to just HK$0.08 in FY2013, for instance), Valuetronics’ payout has still shown an upward climb over the years – that’s another noteworthy aspect.

These traits, when taken together, can give investors some confidence that the firm has the capability to continue paying out dividends in the years ahead.

The second chart illustrates Valuetronics’ payout ratios over the same period as in the first chart above:

Chart 2 - Valuetronics' payout ratios (2)

Source: S&P Capital IQ (FY2010 does not have a reading for Dividends / Free Cash Flow because the number’s really high and would skew the chart’s axes)

Payout ratios (dividends as a percentage of profit and dividends as a percentage of free cash flow) can give us some indication of a company’s room for error when it comes to maintaining or growing its dividends in the future. Generally speaking, a lower payout ratio would correspond to more room for error.

In FY2015, Valuetronics’ dividend was just 50% and 50.8% of its earnings and free cash flow, respectively. These are healthy levels and point to the company having a large margin of safety in protecting or raising its future dividends.

When we put all that we’ve seen so far about Valuetronics’ dividends together, it’d appear that there are things to like about the firm as a dividend stock. But, it’s important to note that more work needs to be done beyond this – for instance, an assessment of the qualitative aspects of the firm’s business – before any investing decision can be reached.

For more analyses on dividend investing and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead. Also, like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any companies mentioned.