American Software’s (NASDAQ:AMSW.A) Dividend Will Be $0.11

The board of American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend of $0.11 per share on the 17th of February. The dividend yield will be 3.1% based on this payment which is still above the industry average.

View our latest analysis for American Software

American Software Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn’t matter much if the payments can’t be sustained. Based on the last payment, the company wasn’t making enough to cover what it was paying to shareholders. This situation certainly isn’t ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 3.3%. Assuming the dividend continues along with recent trends, we think the payout ratio could reach 135%, which probably can’t continue without putting some pressure on the balance sheet.

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historic-dividend

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. Since 2012, the dividend has gone from $0.36 total annually to $0.44. This means that it has been growing its distributions at 2.0% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Over the past five years, it looks as though American Software’s EPS has declined at around 12% a year. A sharp decline in earnings per share is not great from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It’s not all bad news though, as the earnings are predicted to rise over the next 12 months – we would just be a bit cautious until this becomes a long term trend.

The Dividend Could Prove To Be Unreliable

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. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Investors generally tend to favor companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analyzing a company. For instance, we’ve picked out 1 warning sign for American Software that investors should take into consideration. Looking for more high-yielding dividend ideas? Try ours collection of strong dividend payers.

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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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