Stock Analysis

American Software (NASDAQ:AMSW.A) Is Due To Pay 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 on the 18th of February, with investors receiving US$0.11 per share. The dividend yield will be 1.8% based on this payment which is still above the industry average.

View 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. The last dividend was quite comfortably covered by American Software's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 85% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to fall by 14.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 147%, which could put the dividend under pressure if earnings don't start to improve.

historic-dividend
NasdaqGS:AMSW.A Historic Dividend November 21st 2021

American Software Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the first annual payment was US$0.36, compared to the most recent full-year payment of US$0.44. This works out to be a compound annual growth rate (CAGR) of approximately 2.0% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

American Software Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that American Software has grown earnings per share at 5.8% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On American Software's Dividend

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. While American Software is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think American Software is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 3 warning signs for American Software that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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