of Absolute Software Corporation (TSE:ABST) investors will receive a payment of $0.08 per share on February 23. This brings the dividend yield to his 2.0%, significantly increasing returns for investors.
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Absolute Software makes more money than it earns
We expect a solid dividend yield, but it doesn’t matter if the payouts aren’t sustainable. Absolute Software is not profitable, but it does generate healthy free cash flow that can easily cover its dividend. Cash flow is generally more important than traditional earnings metrics, so we’re pretty happy with the dividend at this level.
Earnings per share is projected to increase by 108.9% over the next year. If the dividend continues its recent trend, the company will pay several times its earnings over the next 12 months, which could start to put pressure on its balance sheet.
Absolute software has a proven track record
The company continues to pay dividends with little volatility. Since 2013, the annual payment was $0.194 at that time, while the most recent annual payment was $0.238. This means that we have grown the distribution at 2.0% per annum during that time. Slow and steady dividend growth may not be attractive, but the dividend has been steady for 10 years and he thinks this is a pretty compelling offer.
Dividend Growth Potential Unstable
Investors who have held shares in the company for the past few years will be pleased with the dividend income received. But things are not so rosy. Absolute Software’s earnings per share have shrunk at an annual rate of 37% over the past five years. A sharp decline in earnings per share is not very good from a dividend perspective. Even modest payout percentages can come under pressure if earnings drop significantly. On the bright side, earnings are projected to pick up somewhat over the next year, but we won’t feel too comfortable until this turns into a pattern.
Our Thoughts on Absolute Software Dividends
In summary, it’s good that the dividend hasn’t been cut, but I’m a little cautious about Absolute Software’s payouts. The company generates ample cash, but we believe the dividend is a little high for peace of mind. If income is your focus, I don’t think Absolute Software is the best stock to add to your portfolio.
Companies with stable dividend policies are likely to attract more investor interest than those that suffer from more inconsistent approaches. On the other hand, despite the importance of dividend payments, dividends aren’t the only factor readers should be aware of when evaluating a company.As an example, we came across 4 Warning Signs from Absolute Software You should know and one of them doesn’t sit very well with us. A curated list of high yielding dividend stocks.
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