Formpipe Software (STO:FPIP) Has Announced That It Will Be Increasing Its Dividend To kr0.70

Formpipe Software AB (publ) (STO:FPIP) will increase its dividend on the 4th of May to kr0.70, which is 6.1% higher than last year. This will take the annual payment from 1.9% to 2.0% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Formpipe Software

Formpipe Software Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment made up 70% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 7.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 99%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from kr0.50 to kr0.66. This means that it has been growing its distributions at 2.8% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Formpipe Software has seen EPS rising for the last five years, at 20% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

We Really Like Formpipe Software's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Formpipe Software that investors should know about before committing capital to this stock. 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.