AudioCodes' (NASDAQ:AUDC) Dividend Will Be $0.18

AudioCodes Ltd. (NASDAQ:AUDC) will pay a dividend of $0.18 on the 31st of August. This means that the annual payment will be 3.2% of the current stock price, which is in line with the average for the industry.

View our latest analysis for AudioCodes

AudioCodes' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the company was paying out 125% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Looking forward, earnings per share is forecast to rise by 34.2% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 68% which would be quite comfortable going to take the dividend forward.

AudioCodes Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2018, the dividend has gone from $0.20 total annually to $0.36. This means that it has been growing its distributions at 12% per annum over that time. 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.

AudioCodes Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that AudioCodes has been growing its earnings per share at 14% a year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about AudioCodes' payments, as there could be some issues with sustaining them into the future. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for AudioCodes (1 shouldn't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.