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Should You Buy Aptitude Software Group plc (LON:APTD) For Its Upcoming Dividend In 3 Days?

Simply Wall St

Aptitude Software Group plc (LON:APTD) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 5th of September in order to be eligible for this dividend, which will be paid on the 4th of October.

Aptitude Software Group's next dividend payment will be UK£0.018 per share. Last year, in total, the company distributed UK£0.066 to shareholders. Looking at the last 12 months of distributions, Aptitude Software Group has a trailing yield of approximately 1.1% on its current stock price of £5.98. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Aptitude Software Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Aptitude Software Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Aptitude Software Group paying out a modest 26% of its earnings. A useful secondary check can be to evaluate whether Aptitude Software Group generated enough free cash flow to afford its dividend. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Aptitude Software Group'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 how much of its profit Aptitude Software Group paid out over the last 12 months.

LSE:APTD Historical Dividend Yield, September 1st 2019

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Aptitude Software Group's earnings per share have risen 19% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Aptitude Software Group has delivered 9.3% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Aptitude Software Group an attractive dividend stock, or better left on the shelf? Aptitude Software Group has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

Curious about whether Aptitude Software Group has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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. Thank you for reading.