Formpipe Software's (STO:FPIP) Dividend Will Be Increased To kr0.70

The board of Formpipe Software AB (publ) (STO:FPIP) has announced that it will be increasing its dividend on the 4th of May to kr0.70. This will take the annual payment from 2.0% to 2.0% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Formpipe Software

Formpipe Software's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Formpipe Software's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 96% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

EPS is set to grow by 1.5% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 90%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from kr0.60 in 2012 to the most recent annual payment of kr0.70. This implies that the company grew its distributions at a yearly rate of about 1.6% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Formpipe Software has seen EPS rising for the last five years, at 20% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Formpipe Software's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Formpipe Software's payments are rock solid. While Formpipe Software is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Formpipe Software that investors need to be conscious of moving forward. Is Formpipe Software not quite the opportunity you were looking for? Why not check out our selection of top 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.