American Software (NASDAQ:AMSW.A) Has Announced A Dividend Of $0.11

The board of American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend on the 25th of August, with investors receiving $0.11 per share. This makes the dividend yield 4.2%, which will augment investor returns quite nicely.

View our latest analysis for American Software

American Software Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the dividend made up 133% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand by 8.8%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 136%, which probably can't continue without putting some pressure on the balance sheet.

American Software Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $0.36, compared to the most recent full-year payment of $0.44. This means that it has been growing its distributions at 2.0% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Come By

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. American Software has seen earnings per share falling at 5.1% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

American Software's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about American Software's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

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 example, we've picked out 2 warning signs for American Software that investors should know about before committing capital to this stock. Is American Software not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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