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Is Buying American Software Inc (NASDAQ:AMSW.A) For Its Upcoming US$0.11 Dividend A Good Choice?

On the 31 August 2018, American Software Inc (NASDAQ:AMSW.A) will be paying shareholders an upcoming dividend amount of US$0.11 per share. However, investors must have bought the company’s stock before 16 August 2018 in order to qualify for the payment. That means you have only 2 days left! Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let’s take a look at American Software’s most recent financial data to examine its dividend characteristics in more detail.

See our latest analysis for American Software

5 questions to ask before buying a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

  • Is their annual yield among the top 25% of dividend payers?

  • Does it consistently pay out dividends without missing a payment of significantly cutting payout?

  • Has it increased its dividend per share amount over the past?

  • Can it afford to pay the current rate of dividends from its earnings?

  • Will the company be able to keep paying dividend based on the future earnings growth?

NasdaqGS:AMSW.A Historical Dividend Yield August 13th 18
NasdaqGS:AMSW.A Historical Dividend Yield August 13th 18

How does American Software fare?

American Software has a trailing twelve-month payout ratio of 109.81%, meaning the dividend is not sufficiently covered by its earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. AMSW.A has increased its DPS from $0.36 to $0.44 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes AMSW.A a true dividend rockstar.

Relative to peers, American Software generates a yield of 2.76%, which is high for Software stocks but still below the market’s top dividend payers.

Next Steps:

Whilst there are few things you may like about American Software from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three pertinent factors you should further examine:

  1. Future Outlook: What are well-informed industry analysts predicting for AMSW.A’s future growth? Take a look at our free research report of analyst consensus for AMSW.A’s outlook.

  2. Valuation: What is AMSW.A worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AMSW.A is currently mispriced by the market.

  3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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