Absolute Software (TSE:ABST) Will Pay A Dividend Of CA$0.08

Absolute Software Corporation's (TSE:ABST) investors are due to receive a payment of CA$0.08 per share on 27th of August. The dividend yield will be 1.8% based on this payment which is still above the industry average.

Check out our latest analysis for Absolute Software

Absolute Software Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Absolute Software's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, earnings per share is forecast to fall by 77.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach over 200%, which could put the dividend in jeopardy if the company's earnings don't improve.

Absolute Software Doesn't Have A Long Payment History

Absolute Software's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from US$0.19 in 2012 to the most recent annual payment of US$0.25. This implies that the company grew its distributions at a yearly rate of about 2.9% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Absolute Software May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Absolute Software has seen earnings per share falling at 4.3% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

The company has also been raising capital by issuing stock equal to 17% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

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 Absolute Software's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Absolute Software is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Absolute Software that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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