Stock Analysis

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

  •  Updated
NasdaqGS:AMSW.A
Source: Shutterstock

The board of American Software, Inc. (NASDAQ:AMSW.A) has announced that it will pay a dividend on the 26th of August, with investors receiving US$0.11 per share. This makes the dividend yield 2.6%, which will augment investor returns quite nicely.

See 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. Based on the last payment, American Software's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

EPS is set to fall by 35.7% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 182%, which is definitely a bit high to be sustainable going forward.

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

American Software Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was US$0.36 in 2012, and the most recent fiscal year payment was 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 Is Doubtful

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though American Software's EPS has declined at around 5.3% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.

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. For instance, we've picked out 3 warning signs for American Software that investors should take into consideration. Is American Software not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether American Software is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis