Last update on 2024-06-27

Software (SOW.DE) - Dividend Analysis (Final Score: 4/8)

Comprehensive dividend analysis of Software (SOW.DE), scoring 4/8 based on reliability, growth, and coverage criteria over the past 20 years. Detailed insights and charts.

Short Analysis - Dividend Score: 4

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

Software AG (SOW.DE)'s dividend policy was evaluated using an 8-criteria scoring system, resulting in a total dividend score of 4. The analyses examined areas such as dividend yield, growth rate, payout ratio, coverage by earnings and cash flow, stability, continuity, and stock repurchases.

Insights for Value Investors Seeking Stable Income

While Software AG has shown consistency in paying dividends since 2005 and maintains a healthy payout ratio, there are significant issues in its dividend yield, growth rate, and stability. The current yield is well below the industry average, and the growth rate is highly volatile, well below the desired 5% threshold. Additionally, dividends have exhibited considerable instability over the last two decades. Therefore, unless future improvements are made, investors prioritizing stable and high dividend returns might want to be cautious about investing in Software AG.

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?

Dividend yield signifies the annual dividend payment as a percentage of the stock price. This is a crucial component for income-focused investors to determine the return on investment from dividends alone. Comparing a company’s dividend yield to the industry average helps in gauging its attractiveness to investors looking for consistent income.

Software AG (SOW.DE) has had a highly volatile dividend yield over the past 20 years. The company managed to significantly surpass the industry average in most years, except for a few like the late 2000s, when it lagged. However, as of 2023, the dividend yield of 0.1385% has plummeted well below the industry average of 0.4%. This massive drop is a concerning trend, deviating substantially from historical performance. Several factors might contribute to this drastic fall, like policy changes in dividend distributions, downturns in financial performance, or slumping stock prices. With the current yield not even reaching half the industry's average, days of attractive dividend returns for Software AG seem to be dwindling. Rigorous evaluation is needed for potential investors targeting income particularly since retaining such unsustainably low yields might render the stock less appealing.

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

The Dividend Growth Rate is higher than 5% in the last 20 years?

The sequence of dividend per share (DPS) data for Software (SOW.DE) over the past 20 years manifest a series of inconsistencies. For instance, the DPS showed robust increments from 2006 to 2008 and once again from 2009 to 2011, whereas stark declines were noted especially in 2012. The erratic patterns with extreme year-to-year variations question the stability necessary for a reliable trend calculation. An average dividend growth rate of 0.38% suggests a highly volatile payout policy unmoored from dependable, progressive growth. An average way below the 5% threshold denotes a subpar performance along this crucial yardstick, thus, indicating a precarious dividend growth trajectory unsuitable for risk-averse, income-focused investors. Clearly, improvements are warranted, given the adverse impactions this volatility can achieve for overall shareholder return.

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

The average payout ratio measures the proportion of earnings paid to shareholders in the form of dividends. A ratio below 65% suggests financial flexibility and the ability to reinvest in growth.

Based on the provided data, Software (SOW.DE) has an average payout ratio of 58.98% over the last 20 years. This is a positive trend as it indicates a balanced approach towards rewarding shareholders while retaining enough earnings for reinvestment. The higher payout ratios in some years, such as 2020 (296.18%) and 2006 (92.53%), were likely anomalies. A consistently lower payout ratio is generally seen as a sign of financial health and sustainability.

Dividends Well Covered by Earnings?

Explain the criterion for Software (SOW.DE) and why it is important to consider

Explain that EPS is the portion of a company's profit allocated to each outstanding share of common stock, which is a key indicator of company profitability. Highlight that dividends per share are the portion of the EPS paid out to shareholders - a well-covered dividend by EPS indicates financial health and sustainability. Also note that SOW.DE's historical EPS figures are crucial to evaluate their ability to sustain dividends. Analyze both EPS and dividends per share trends to gauge coverage ratio, which provides insight into how comfortably earnings can support dividends.

Dividends Well Covered by Cash Flow?

Coverage of dividends by cash flow is a critical metric to evaluate the sustainability of a company's dividend payouts. A well-covered dividend suggests that the company generates enough cash to comfortably pay out dividends without hampering its operations or investments.

When examining the dividend coverage by cash flow for Software (SOW.DE), we see significant fluctuations over the years. The lowest coverage ratio observed is in the initial years and in 2023 where no dividends were paid, implying all available cash flow could be retained or other financial challenges demotivated payouts. However, we see a strong increasing trend in the coverage ratio, especially notable in 2020 (54.93%) and 2021 (53.89%). This suggests that during these periods, the company had a robust free cash flow relative to its dividend payments. Furthermore, although 2022 shows an anomalously high coverage ratio (1149.15%), it may be due to extremely low free cash flow resulting in near-zero dividends, skewing the interpretation. On average, a ratio around 20%-33% in most years indicates that the dividends were well within means, neither overextended nor excessively hoarded. This is a favorable trend for investors seeking sustainable dividends.

Stable Dividends Since the Company Began Paying Dividends?

Stable Dividends Over the Past 20 Years. Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades.

Analyzing Software (SOW.DE)'s dividend payments over the past 20 years exhibits noticeable volatility. The dividend payment in 2012 (0.46) marks a significant drop from 1.3 in 2011, which is more than 64%, far exceeding the desired stability threshold of 20%. Additionally, the dividend in 2023 sees a striking decline to 0.05 from 0.76 in the preceding years. These figures indicate an alarming instability, which could be of significant concern for income-seeking investors. Hence, Software AG's dividends do not fulfill the criterion of stable dividends required for dependable income generation.

Dividends Paid for Over 25 Years?

A company's ability to pay dividends consistently for over 25 years is a strong indicator of financial stability and reliability. It reflects the company's sustained profitability and effective capital allocation strategies.

Software AG (SOW.DE) has been paying dividends consistently from 2005 to 2023, with an unbroken streak of payments. However, dividends were not issued before 2005, indicating that the company has not achieved the 25-year mark yet. Inconsistencies can be observed in the dividend per share, such as a significant drop in 2023 to €0.05, down from €0.76 in the previous year. While the overall trend shows stability, the recent drop raises questions about near-term financial strategies or unexpected challenges faced by the company. Thus, while the general trend is favorable, meeting the specific criterion of a 25-year dividend history is still in progress and there is room for scrutiny regarding recent performance.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Software (SOW.DE) and why it is important to consider

Reliable stock repurchases, indicated by a consistent reduction in the number of shares outstanding, demonstrate that a company is confident in its own financial health and its ability to reinvest in itself. By repurchasing shares, Software (SOW.DE) effectively returns value to shareholders by increasing the ownership stake of remaining shares, which can lead to higher earnings per share (EPS) and potentially boost the stock price. Over the past 20 years, Software's number of shares outstanding has noticeably fluctuated. Starting from 83,050,000 shares in 2003, the company managed to reduce its shares to approximately 73,979,889 by 2023. Key years of repurchases according to the reliable repurchased years include 2004, 2010, and between 2012 and 2019, showcasing periods of reduced outstanding shares.