American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend of $0.11 per share. share on 1 December. This means that the annual payment is 4.0% of the current share price, which is above the industry average.
See our latest analysis for American Software
American software doesn’t make enough to cover its payments
We like to see robust dividend yields, but that doesn’t matter if the payout isn’t sustainable. Prior to this announcement, the company paid out 135% of what it earned. This situation is certainly not ideal and could put significant pressure on the balance sheet if it continues.
Over the next year, EPS is expected to grow by 4.9%. If the dividend continues at its recent rate, the payout ratio in 12 months could be 134%, which is a bit high and could start to put pressure on the balance sheet.
American software has a solid track record
The company has paid dividends for a long time and it has been quite stable, which gives us confidence in the future dividend potential. Since 2013, the dividend has gone from a total of $0.40 annually to $0.44. Its dividend has grown by less than 1% per year over that time frame. The dividend has grown relatively slowly, which is not good, but some investors may appreciate the relative consistency of the dividend.
American software may find it difficult to increase profits
The company’s investors will be pleased to have received dividend income for some time. Let’s not jump to conclusions as things may not be as good as they seem on the surface. However, American Software’s EPS was flat in real terms over the past five years, which could prevent the company from paying out more each year.
American Software’s dividend does not look sustainable
Overall, it’s nice to see a consistent dividend payout, but we think that in the longer term, the current payout level may be unsustainable. In the past, the payments have been stable, but we believe that the company is paying out too much for it to continue in the long term. This company is not in the top tier of income producing stocks.
Companies with a stable dividend policy are likely to enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when evaluating a company. As an example, we have identified 2 warning signs for US software which you must be aware of before investing. Is American Software not quite the option you were looking for? Why not check out ours selection of best dividend stocks.
Valuation is complex, but we help make it simple.
Find out if US software is potentially over- or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.
See the free analysis
Do you have feedback on this article? Worried about the content? Get in touch with us directly. Alternatively, you can email the editors (at) simplywallst.com.
This article by Simply Wall St is of a general nature. We only provide commentary based on historical data and analyst forecasts 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 shares and does not take into account your goals or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account recent price-sensitive company announcements or qualitative material. Simply Wall St has no position in any listed stocks.