Readers hoping to buy AudioCodes Ltd. (NASDAQ:AUDC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 16th of August to receive the dividend, which will be paid on the 3rd of September.
AudioCodes's next dividend payment will be US$0.12 per share, and in the last 12 months, the company paid a total of US$0.23 per share. Based on the last year's worth of payments, AudioCodes stock has a trailing yield of around 1.2% on the current share price of $18.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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 paid out a comfortable 41% of its profit last year. A useful secondary check can be to evaluate whether AudioCodes generated enough free cash flow to afford its dividend. Fortunately, it paid out only 30% of its free cash flow in the past year.
It's positive to see that AudioCodes's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. That's why it's comforting to see AudioCodes's earnings have been skyrocketing, up 39% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Unfortunately AudioCodes has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
Has AudioCodes got what it takes to maintain its dividend payments? AudioCodes has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. AudioCodes looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Want to learn more about AudioCodes's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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.
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