Should You Buy Sage Group?

LONDON -- Business software specialist Sage Group  (LSE: SGE  ) is a great choice for income investors, in my opinion.

I believe that a chunky, well-covered dividend, allied to great organic growth in North America and emerging markets, makes the company a star software pick.

Brisk momentum rolls on
Sage's January interims confirmed that trading remains robust, and that the company's performance had been in line with expectations.

In particular, Sage continues to make huge strides into North America, and reported that the acceleration seen in the second half of last year had continued into the first quarter -- organic revenues there rose 3% in the March-September period.

As well, Sage is making inroads within developing economies across the globe. Double-digit revenue growth is pencilled in for this year in Brazil, and the firm completed the purchase of Brazil's Empresa Brasileira de Sistemas in October as part of its strategy to broaden its exposure to Latin America's largest economy.

Emerging-market operations galloping higher
Ongoing strength in the Americas, Africa, Australia, the Middle East, and Asia is helping to offset lasting weakness in Europe, and represents the building block of longer-term growth. Operating profit from those regions rose between 5% and 20% during 2012, making up for the 1% dip in Europe and delivering a 3% groupwide advance.

City analysts expect earnings per share to advance 11% in the year ending September 2013 to 22 pence, and march 8% higher the following year to 24 pence.

The company currently trades on a high forward P/E ratio of 15.4, which is forecast to fall to 14.3 in 2014. However, this can still be considered a snip when compared with the eye-watering valuations of much of the wider software sector. Sage's excellent track record of dividend delivery also justifies its rating.

Chunky dividends in the offing
Sage is expected to maintain its progressive dividend policy moving forwards, with a payout of 10.2 pence per share last year forecast by City brokers to rise to 11.2 pence and 11.6 pence in 2013 and 2014 respectively.

These payouts are expected to be reflected in a plump yield of 3.3% this year and 3.4% in 2014, fractionally below the current FTSE 100 average of 3.5%. And with dividend cover bang on the safety watermark of 2 for both 2013 and 2014, investors can be confident of Sage's payout potential.

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