American Software (NASDAQ:AMSW.A) has confirmed its dividend of $0.11

The Board of American Software, Inc. (NASDAQ:AMSW.A) has announced it will pay a dividend of $0.11 per share on August 26th. This puts the annual payout at 2.8% of the current share price, above the industry average.

Check out our latest analysis for American Software

American Software isn’t making enough to cover its payments

While it’s great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, American Software’s dividend was higher than earnings, but free cash flows comfortably covered that. Healthy cash flows are always a positive sign, especially when they easily cover the dividend.

EPS growth of 2.1% is expected over the next 12 months. If the dividend stays where it has been, the payout ratio could be 115% 12 months from now, which is a bit high and could put pressure on the balance sheet.

historical dividend

historical dividend

American Software has a solid track record

The company has a long history of paying stable dividends. Since 2012, the annual payment was $0.36 back then, compared to the last full-year payment of $0.44. This implies that the company grew its payouts at an annual rate of about 2.0% over this period. Slow and steady dividend growth might not sound all that exciting, but dividends have been stable for a decade, which we think makes this a pretty attractive proposition.

Dividend growth is doubtful

The company’s investors will be happy to receive dividend income for some time. Let’s not jump to conclusions as things may not be as good as they appear on the surface. Over the past five years, American Software’s earnings per share have shrunk by about 5.4% annually. A slight drop in earnings isn’t great, and it makes it fairly unlikely that the dividend will increase in the future unless that trend can be reversed. Earnings are forecast to increase over the next 12 months and if that happens we could still be a bit cautious until it becomes a pattern.

in summary

Overall, we don’t think this company is a great dividend stock, even though the dividend hasn’t been cut this year. The company makes a lot of money, but we still think the dividend is a little too high for consolation. This company isn’t in the top category of income producing stocks.

It’s important to note that companies with a consistent dividend policy inspire more confidence among investors than companies with an unpredictable one. Despite the importance of dividend payments, however, they’re not the only factors our readers should be aware of when evaluating a company. For example, we picked out 1 American Software Warning Sign Investors should know about before investing any capital in this stock. Looking for more high-yield dividend ideas? Try our Collection of strong dividend payers.

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This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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