Softchoice's (TSE:SFTC) Upcoming Dividend Will Be Larger Than Last Year's

Softchoice Corporation's (TSE:SFTC) dividend will be increasing from last year's payment of the same period to $4.13 on 12th of April. This makes the dividend yield 2.4%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Softchoice's stock price has increased by 42% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Softchoice

Softchoice Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Softchoice was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Earnings per share is forecast to rise by 15.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

Softchoice Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of $0.224 in 2021 to the most recent total annual payment of $0.383. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Softchoice has been growing its earnings per share at 65% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

We Really Like Softchoice's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour 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 analysing a company. For example, we've picked out 2 warning signs for Softchoice that investors should know about before committing capital to this stock. Is Softchoice not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.