Be Sure To Check Out Installed Building Products, Inc. (NYSE:IBP) Before It Goes Ex-Dividend

Installed Building Products, Inc. (NYSE:IBP) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Installed Building Products' shares before the 14th of June in order to be eligible for the dividend, which will be paid on the 30th of June.

The upcoming dividend for Installed Building Products will put a total of US$0.30 per share in shareholders' pockets. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Installed Building Products can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Installed Building Products

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Installed Building Products paid out just 8.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. It paid out 5.9% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Installed Building Products's earnings have been skyrocketing, up 32% per annum for the past five years. Installed Building Products looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

This is Installed Building Products's first year of paying a dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.

To Sum It Up

From a dividend perspective, should investors buy or avoid Installed Building Products? We love that Installed Building Products is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Installed Building Products looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Installed Building Products for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Installed Building Products that you should be aware of before investing in their shares.

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.

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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. 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.
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