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Armstrong World Industries, Inc. (NYSE:AWI) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before the record date and is the closing date on which a shareholder is on the company’s books and eligible for dividend payments. It is important to note the ex-dividend date, as trades in the stock must be settled on or before the record date. Therefore, if he purchased Armstrong World Industries stock after February 28th, he would not be eligible to receive the dividend paid on March 14th.
The company’s next dividend payment will be $0.28 per share, following a total of $1.12 paid to shareholders last year. Based on the last year of payments, Armstrong World Industries stock has a yield of about 0.9% on the current price of $122.37. If you buy this business for its dividend, you need to understand whether Armstrong World Industries’ dividend is reliable and sustainable. As a result, readers should always check whether Armstrong World Industries was able to grow its dividends, or if the dividends could be cut.
Check out our latest analysis for Armstrong Global Industries.
Dividends are typically paid out of company profits, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Armstrong World Industries paid out just 21% of its profit last year, which is conservatively low, and we think it leaves plenty of headroom for the unexpected. That said, even highly profitable companies might not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. It distributed 31% of its free cash flow as dividends, which is a comfortable dividend level for most companies.
It’s positive to see that Armstrong World Industries’ dividend is covered by both profit and cash flow. This usually indicates that the dividend is sustainable, as a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio and analyst estimates of its future dividends.
Are profits and dividends growing?
Stocks in companies that generate sustainable earnings growth often have the best dividend prospects, as it’s easier to lift the dividend when earnings are rising. If business performance deteriorates and dividends are reduced, corporate value may fall sharply. With that in mind, we’re encouraged by Armstrong World Industries’ steady growth, which has seen its earnings per share increase by an average of 6.7% over the past five years. The company retains more than half of its profits within the business, and profits are growing at a reasonable pace. We generally think this is an attractive combination, as the combination of earnings growth and improving payout ratios over time has the potential to increase dividends.
Many investors assess a company’s dividend performance by evaluating how much its dividend payments have changed over time. Armstrong World Industries has grown its dividend at an average rate of 9.9% per year, based on the past five years of dividend payments. It’s encouraging to see the company raising its dividend amid growing profits, suggesting that the company has at least some interest in rewarding shareholders.
final point
Is Armstrong World Industries an attractive dividend stock, or should it be left on the shelf? Earnings per share growth has been modest, and Armstrong World Industries is paying out less than half of its profit and cash flow as dividends. This is interesting for a number of reasons, as it suggests management may be reinvesting heavily in the business, while also giving it scope to increase the dividend. We want earnings to grow faster, and the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Armstrong World Industries is somewhere in between. This is a promising combination and should indicate that this company deserves more attention.
So while Armstrong World Industries looks good from a dividend perspective, it’s always worth keeping up to date with the risks involved with this stock. For example, I found that: 1 warning sign for Armstrong World Industries We recommend that you consider this before investing in your business.
Generally speaking, we don’t recommend just buying the first dividend stock you see.Here it is A carefully selected list of interesting stocks with high dividends.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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