American Software (NASDAQ:AMSW.A) Will Pay A Dividend Of US$0.11
The board of American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend on the 18th of February, with investors receiving US$0.11 per share. Based on this payment, the dividend yield on the company's stock will be 2.0%, which is an attractive boost to shareholder returns.
See our latest analysis for American Software
American Software Doesn't Earn Enough To Cover Its Payments
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, the company's dividend was higher than its profits, and made up 85% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.
EPS is set to fall by 17.8% 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 157%, which is definitely a bit high to be sustainable going forward.
American Software Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$0.36 in 2012 to the most recent annual payment of US$0.44. This means that it has been growing its distributions at 2.0% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
There Isn't Much Room To Grow 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. American Software has seen EPS rising for the last five years, at 5.7% per annum. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.
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 be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 4 warning signs for American Software that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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.
