Formpipe Software (STO:FPIP) Is Paying Out A Dividend Of SEK0.25

Formpipe Software AB (publ) (STO:FPIP) will pay a dividend of SEK0.25 on the 6th of November. This means the annual payment is 1.8% of the current stock price, which is above the average for the industry.

Our free stock report includes 2 warning signs investors should be aware of before investing in Formpipe Software. Read for free now.

Formpipe Software's Payment Could Potentially Have 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, Formpipe Software's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 24%, which is in a comfortable range for us.

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. Since 2016, the annual payment back then was SEK0.10, compared to the most recent full-year payment of SEK0.50. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. 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.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Formpipe Software's earnings per share has shrunk at 13% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in 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 would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Formpipe Software that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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