Formpipe Software (STO:FPIP) Has Announced A Dividend Of SEK0.25

Formpipe Software AB (publ) (STO:FPIP) will pay a dividend of SEK0.25 on the 6th of November. This makes the dividend yield 1.8%, which will augment investor returns quite nicely.

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Formpipe Software's Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 216% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 56%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next 12 months is set to see EPS grow by 50.8%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 154% over the next year.

See our latest analysis for Formpipe Software

Formpipe Software's Dividend Has Lacked Consistency

It's comforting to see that Formpipe Software has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of SEK0.10 in 2016 to the most recent total annual payment of SEK0.50. This means that it has been growing its distributions at 20% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Formpipe Software's EPS has declined at around 21% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Formpipe Software's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Formpipe Software is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Formpipe Software 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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