Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see AudioCodes Ltd. (NASDAQ:AUDC) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 14th of February to receive the dividend, which will be paid on the 4th of March.
AudioCodes’s next dividend payment will be US$0.13 per share. Last year, in total, the company distributed US$0.26 to shareholders. Based on the last year’s worth of payments, AudioCodes has a trailing yield of 1.1% on the current stock price of $22.65. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! As a result, readers should always check whether AudioCodes has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. AudioCodes paid out 184% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.
It’s disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and AudioCodes fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we’d be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It’s encouraging to see AudioCodes has grown its earnings rapidly, up 39% a year for the past five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. AudioCodes has delivered 14% dividend growth per year on average over the past two years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Should investors buy AudioCodes for the upcoming dividend? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why AudioCodes is paying out so much of its profit. In summary, while it has some positive characteristics, we’re not inclined to race out and buy AudioCodes today.
Ever wonder what the future holds for AudioCodes? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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