Last update on 2024-06-27

American Software (AMSWA) - Dividend Analysis (Final Score: 4/8)

American Software (AMSWA) dividend analysis: A detailed evaluation using an 8-criteria scoring system, highlighting performance and stability (Score: 4/8).

Short Analysis - Dividend Score: 4

We're running American Software (AMSWA) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis for American Software (AMSWA) using an 8-criteria scoring system results in a dividend score of 4. Key points include: 1. Dividend Yield: Consistently higher yield than industry average, with significant historical volatility. 2. Dividend Growth: Average growth rate of 22.15%, but highly volatile. 3. Payout Ratio: Average of 143.94% over 20 years, suggesting potential financial strain to sustain dividends. 4. Dividend Coverage (Earnings): Inconsistent coverage by earnings, with recent ratios below 1. 5. Dividend Coverage (Cash Flow): Fluctuating coverage ratio, with some years showing strain in maintaining dividends. 6. Dividend Stability: Generally stable, but notable drops in 2013 and 2020. 7. Dividend History: Paid consistently since 2003, reflecting reliability and shareholder commitment. 8. Stock Repurchases: Limited buybacks over 20 years, suggesting minimal focus on reducing share dilution.

Insights for Value Investors Seeking Stable Income

AMSWA shows strong dividend yields and growth but has issues with high payout ratios, inconsistent dividend coverage by earnings and cash flow, and notable dividend instability in certain years. Although their long-term dividend history is positive and showcases some reliability, the limited stock repurchase efforts and financial strain in maintaining dividends make them a somewhat risky option for conservative dividend investors. Further scrutiny and consideration of the investor's risk tolerance are advised before investing in AMSWA.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

High dividend yield compared to the industry average.

American Software's (AMSWA) current dividend yield of 1.9469% is notably higher than the industry average of 0.79%. Over the last two decades, the company's dividend yield has shown significant volatility, reaching highs such as 8.5052% in 2012 and 7.6596% in 2008. In stark contrast, the industry average has largely remained lower, peaking at only 2.81% in 2012. Despite this volatility, AMSWA's dividend yield consistently outperforms the industry average, indicating a strong commitment to returning value to shareholders. The stock price has also seen substantial fluctuations, from $7.16 in 2003 to a peak of $26.17 in 2021, before settling at $11.3 in 2023. This trend suggests that the company has been willing to maintain high dividend payouts even amid fluctuating stock prices, making it an attractive option for dividend-focused investors. The trend is generally favorable, showcasing AMSWA's superior yield performance within its industry.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures how much the company's dividend payments have increased over a specific period. A Dividend Growth Rate above 5% is typically considered healthy.

From the provided dividend ratio data for the last 20 years, the values are quite volatile, including both significant positive and negative growth years. Calculating the average dividend growth rate, we get approximately 22.15%. While this average suggests strong growth overall, the volatility could be a concern for investors seeking consistent returns. The high positive rates can be attractive, but the negative values can offset this. Despite this, a 22.15% average growth rate is excellent and implies that American Software has generally been able to increase its dividend significantly, albeit with fluctuations.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio represents the proportion of earnings paid out as dividends to shareholders, and an average below 65% is considered financially sound as it ensures that the company retains enough earnings for growth and stability.

Based on the provided data, American Software (AMSWA) has a 20-year average payout ratio of approximately 143.94%, well above the 65% threshold for financial conservatism and sustainability. Such a high payout ratio might indicate that the company is returning a substantial portion of its earnings to shareholders. However, several years show exceedingly high payout ratios, even surpassing 100%, which suggests the company may have been unable to cover dividends with its earnings in those periods. Examples include extraordinarily high payout ratios in 2009 (307.43%), 2010 (204.17%), and 2020 (207.16%), which can be concerning from a dividend sustainability perspective. This trend is generally negative as it may demonstrate potential risks to the company's capacity to maintain dividend payments without straining its financial health.

Dividends Well Covered by Earnings?

Dividend coverage by earnings measures the sustainability of dividend payments and indicates financial health.

Reviewing American Software's (AMSWA) dividend coverage by earnings reveals a fluctuating trend over the years. The payout ratio, calculated as dividends per share divided by earnings per share, peaked at over 3 times the earnings (e.g., 3.07 in 2009) and hit lows where earnings couldn't cover dividends (e.g., 0.27 in 2013). The most recent coverage ratio (2023) stands at 0.71, suggesting dividends are now more modest compared to earnings. This variability indicates inconsistency in earnings relative to dividends, posing potential sustainability concerns. A coverage ratio below 1 (as seen in multiple years) highlights times when dividends were not fully backed by earnings, often requiring other means such as reserves or borrowing to maintain payouts. For consistent and financially healthy dividend payments, optimally, a ratio consistently above 1 is preferred, demonstrating that earnings can cover dividends comfortably. The trend shows that AMSWA needs to manage its dividend policy relative to its earnings effectively to assure long-term sustainability.

Dividends Well Covered by Cash Flow?

This criterion evaluates whether the company’s free cash flow is sufficient to cover its dividend payouts. Consistently high coverage ratios suggest financial stability, whereas low or negative ratios may signal potential issues in sustaining dividend payments.

Examining American Software's (AMSWA) dividend covered by cash flow ratio over the given period, the trend shows significant fluctuations. Notably, there were years like 2011 and 2018 where the coverage ratio spiked to unusually high values (46.51 and 25.26 respectively). Conversely, negative ratios in years like 2010 and 2023 indicate that the company's free cash flow was not sufficient to cover the dividend payout. In total, about four years had a ratio below 1, implying a strain in maintaining dividends from free cash flow for those years. The overall trend raises some concerns regarding the stability and predictability of AMSWA’s dividend sustainability. Robust coverage was evident in some years, but the inconsistency is a potential red flag that demands further scrutiny, especially considering the negative coverage in recent years.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over the last 20 years is crucial for income-seeking investors because it provides a reliable income stream and can indicate the company's strong financial health and commitment to returning value to shareholders.

Over the past 20 years, American Software (AMSWA) has generally maintained a stable dividend. However, there are notable fluctuations, such as a drop from $0.66 in 2012 to $0.10 in 2013 and from $0.55 in 2019 to $0.44 in 2020. These reductions significantly exceed the 20% threshold. The general trend demonstrates instability and raises concerns about the reliability of dividends. Whereas most other years have declines within acceptable limits, these outliers are stark and troubling. It signifies potential risks in the company's ability to sustain dividends during adverse conditions, questioning its dependability as a source of consistent income for investors.

Dividends Paid for Over 25 Years?

Analyze if the dividends have been paid for over 25 years by American Software (AMSWA) and understand the consistency and trend significance.

American Software (AMSWA) has a dividend payment history that dates back to 1998, with continuous dividends being paid since 2003. Initially, from 1998 to 2002, no dividends were paid, which might have been due to various business conditions at that time. However, starting in 2003, the company began paying dividends consistently every year, reflecting a commitment to returning value to shareholders. The dividend per share values have shown a general increasing trend, although some fluctuations are noted, such as a sharp decrease in 2013 and another decline in 2023. Despite these fluctuations, the long-term trend shows resilience and growth in the dividend payouts. Consistently paying dividends for over two decades demonstrates American Software's stable financial health and shareholder-friendly policies. Analyzing the consistency and trend, this trend can be considered good because it indicates a reliable income stream for investors and reflects the company's profitability and commitment to shareholder returns.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

A 20-year review shows limited reliable stock repurchases. Only in 2005 and 2009 did American Software (AMSWA) return significant shares, netting an average repurchasing rate of around 1.92%. This sparse activity contrasts with a generally increasing trend of outstanding shares, suggesting minimal focus on buybacks. The overall increase from 23.13 million in 2003 to 33.76 million in 2023 highlights potential dilution, reducing the effectiveness of buybacks.