Stock Analysis

American Software (NASDAQ:AMSW.A) Will Pay A Dividend Of US$0.11

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The board of American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend on the 20th of May, with investors receiving US$0.11 per share. This means the annual payment is 2.2% of the current stock price, which is above the average for the industry.

Check out our latest analysis for American Software

American Software Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, the dividend made up 85% of cash flows, but a higher proportion of net income. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

EPS is set to fall by 17.1% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 155%, which could put the dividend in jeopardy if the company's earnings don't improve.

NasdaqGS:AMSW.A Historic Dividend February 21st 2022

American Software Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from US$0.36 in 2012 to the most recent annual payment of US$0.44. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

There Isn't Much Room To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. American Software has impressed us by growing EPS at 5.7% per year over the past five years. 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

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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 4 warning signs for American Software that you should be aware of before investing. 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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