Fabasoft (ETR:FAA) Will Pay A Smaller Dividend Than Last Year

The board of Fabasoft AG (ETR:FAA) has announced that the dividend on 6th of July will be reduced by 60% from last year's €0.75 to €0.30. However, the dividend yield of 4.4% is still a decent boost to shareholder returns.

Check out our latest analysis for Fabasoft

Fabasoft's Payment Has Solid Earnings Coverage

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. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

The next year is set to see EPS grow by 30.7%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 46% which brings it into quite a comfortable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was €0.075, compared to the most recent full-year payment of €0.75. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Fabasoft Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Fabasoft has grown earnings per share at 11% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Fabasoft that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our 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.