American Software (NASDAQ:AMSW.A) Is Paying Out A Dividend Of $0.11
The board of American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend on the 25th of August, with investors receiving $0.11 per share. The dividend yield will be 3.3% 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
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
The next 12 months is set to see EPS grow by 9.9%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 126%, which probably can't continue without putting some pressure on the balance sheet.
American Software Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was $0.36, compared to the most recent full-year payment of $0.44. This works out to be a compound annual growth rate (CAGR) of approximately 2.0% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. American Software's EPS has fallen by approximately 14% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
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. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for American Software that investors need to be conscious of moving forward. Is American Software not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
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