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 upcoming dividend is US$0.13 a share, following on from the last 12 months, when the company distributed a total of US$0.26 per share to shareholders. Last year's total dividend payments show that AudioCodes has a trailing yield of 1.1% on the current share 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! So we need to investigate whether AudioCodes can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. AudioCodes distributed an unsustainably high 184% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether AudioCodes generated enough free cash flow to afford its dividend. It distributed 32% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while AudioCodes's dividends were not covered by profits, at least they are affordable from a cash perspective. 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. 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. In the last two years, AudioCodes has lifted its dividend by approximately 14% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Has AudioCodes got what it takes to maintain its dividend payments? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with AudioCodes's paying out such a high percentage of its profit. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Wondering 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
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 email@example.com. 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.