American Software's (NASDAQ:AMSW.A) Dividend Will Be $0.11

The board of American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend of $0.11 per share on the 30th of August. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.

View our latest analysis for American Software

American Software Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 153% of what it was earning and 90% of cash flows. 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.

EPS is set to fall by 3.5% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 161%, which could put the dividend under pressure if earnings don't start to improve.

American Software Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.40 in 2014 to the most recent total annual payment of $0.44. Its dividends have grown at less than 1% per annum over this time frame. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that American Software has grown earnings per share at 5.8% 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. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for American Software (2 make us uncomfortable!) 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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