Yahoo Finance Is Software Aktiengesellschaft (ETR:SOW) A Smart Choice For Dividend Investors?
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Software Aktiengesellschaft (ETR:SOW) has started paying a dividend to shareholders. It currently trades on a yield of 2.1%. Let’s dig deeper into whether Software should have a place in your portfolio.
Check out our latest analysis for Software
5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
Is their annual yield among the top 25% of dividend payers?
Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has dividend per share risen in the past couple of years?
Is its earnings sufficient to payout dividend at the current rate?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Software fit our criteria?
The company currently pays out 32% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect SOW’s payout to remain around the same level at 29% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.4%. Furthermore, EPS should increase to €2.27.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Software as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Relative to peers, Software generates a yield of 2.1%, which is high for Software stocks but still below the market’s top dividend payers.
Next Steps:
If you are building an income portfolio, then Software is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for SOW’s future growth? Take a look at our free research report of analyst consensus for SOW’s outlook.
Valuation: What is SOW worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SOW is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
