PSI Software (ETR:PSAN) Is Paying Out A Larger Dividend Than Last Year

The board of PSI Software AG (ETR:PSAN) has announced that it will be increasing its dividend on the 24th of May to €0.40. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

Check out our latest analysis for PSI Software

PSI Software's Earnings Easily Cover the Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite easily covered by PSI Software's earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 35.2%. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was €0.25 in 2012, and the most recent fiscal year payment was €0.40. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. PSI Software has seen EPS rising for the last five years, at 11% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like PSI Software's Dividend

Overall, a dividend increase is always good, and we think that PSI Software is a strong income stock thanks to its track record and growing earnings. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for PSI Software that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.