Stock Analysis

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

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NasdaqGS:AMSW.A
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The board of American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend of US$0.11 per share on the 20th of May. Based on this payment, the dividend yield on the company's stock will be 2.5%, which is an attractive boost to shareholder returns.

See our latest analysis for American Software

American Software Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the dividend made up 88% of cash flows, but a higher proportion of net income. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to fall by 17.7% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 148%, which is definitely a bit high to be sustainable going forward.

historic-dividend
NasdaqGS:AMSW.A Historic Dividend April 28th 2022

American Software Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from US$0.36 to US$0.44. This means that it has been growing its distributions at 2.0% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. American Software has seen EPS rising for the last five years, at 6.5% per annum. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think American Software is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 4 warning signs for American Software that investors need to be conscious of moving forward. 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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