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SoftwareONE Holding AG (VTX:SWON) has announced that it will be increasing its dividend from last year's comparable payment on the 10th of May to CHF0.35. This takes the annual payment to 2.5% of the current stock price, which is about average for the industry.
See our latest analysis for SoftwareONE Holding
SoftwareONE Holding's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. SoftwareONE Holding is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, so there isn't too much pressure on the dividend.
SoftwareONE Holding Is Still Building Its Track Record
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of CHF0.21 in 2020 to the most recent total annual payment of CHF0.35. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
Dividend Growth May Be Hard To Come By
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. SoftwareONE Holding has seen earnings per share falling at 9.4% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think SoftwareONE Holding will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think SoftwareONE Holding is a great stock to add to your portfolio if income is your focus.