In general, companies in the application-software industry do not pay dividends. Among the 142 application-software companies in the Yahoo Finance list, only 12 companies pay dividends. Nevertheless, there are few companies in this industry that pay good dividends and regularly raise their dividend payment.
In this article, I tried to determine which of the four best dividend-yielding application-software stocks, traded in the U.S., is the most attractive for dividend-seeking investors.
I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most important factors for dividend-seeking investors. Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. Companies that regularly increase dividends are generally more stable. Increasing dividends is the assurance that dividend income retains its purchasing power over time. Of course, it is also essential that a company has enough earnings growth prospects to maintain increasing dividend payments.
The four stocks are: American Software, Inc. (NASDAQ:AMSWA), CA Technologies (NASDAQ:CA), Diebold, Incorporated (NYSE:DBD) and Microsoft Corporation (NASDAQ:MSFT). All the data for this article were taken from Yahoo Finance and finviz.com on March 13, before the market open.
The table below presents the four best dividend-yielding application-software companies, their last price, their market cap, the forward annual dividend rate, the forward yield, the payout ratio and the average annual dividend rate of growth for the past 10 years.
The charts below present the dividend yield, the payout ratio and the average annual dividend rate of growth for the past five and 10 years, for four best dividend-yielding application-software companies.
The DBD dividend rate of growth for the past five and 10 years is much lower than the other three companies.
AMSWA Dividend data by YCharts
AMSWA Dividend Yield data by YCharts
AMSWA data by YCharts
The charts below present the trailing P/E, the forward P/E, the average annual earnings growth estimates for the next 5 years and the price to book value of the four companies.
Among the four best dividend-yielding application-software companies American Software has the highest dividend yield at 4.76%, and the payout ratio is at 88%. The company's annual rate of dividend growth over the past 10 years was very high at 18.89%, and over the past five years it was also very high at 26.75%. The trailing P/E is quite high at 23.08, and the forward P/E at 17.87 is much higher than the forward P/E of the other three software companies.
CA Technologies has the second-highest dividend yield at 3.97%, and the payout ratio is quite low at 50%. The company's annual rate of dividend growth over the past 10 years was very high at 20.84. The trailing P/E is quite low at 12.82, and the forward P/E is very low at 9.93.
Diebold, Incorporated has the third-highest dividend yield at 3.95%, and the payout ratio is at 93%, but the company's annual rate of dividend growth over the past five years was only 2.80% and over the past 10 years was 5.15%.
Microsoft has the forth-highest dividend yield at 3.10%, and the payout ratio is quite low at 45%. The company's annual rate of dividend growth over the past 10 years was quite high at 11.14%, and over the past five years it was also very high at 15.89%.
In my opinion, CA Technologies is the best choice among the application-software companies I reviewed for dividend-seeking investors, due to its high yield, high rate of raising dividend payment, and its compelling valuation metrics.