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American Software (NASDAQ:AMSW.A) Has Affirmed Its Dividend Of US$0.11

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The board of American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend of US$0.11 per share on the 26th of August. The dividend yield will be 2.5% based on this payment which is still above the industry average.

View our latest analysis for American Software

American Software Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 119% of what it was earning and 88% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

EPS is set to fall by 17.7% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 148%, which is definitely a bit high to be sustainable going forward.

historic-dividend
historic-dividend

American Software Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from US$0.36 to US$0.44. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

American Software May Have Challenges Growing The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that American Software has grown earnings per share at 6.5% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

American Software's 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 American Software's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. 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 picked out 4 warning signs for American Software that investors should know about before committing capital to this stock. Is American Software not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.