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Should You Buy Armstrong World Industries, Inc. (NYSE:AWI) For Its Upcoming Dividend In 4 Days?

Simply Wall St

It looks like Armstrong World Industries, Inc. (NYSE:AWI) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 6th of November in order to be eligible for this dividend, which will be paid on the 21st of November.

Armstrong World Industries's upcoming dividend is US$0.2 a share, following on from the last 12 months, when the company distributed a total of US$0.8 per share to shareholders. Calculating the last year's worth of payments shows that Armstrong World Industries has a trailing yield of 0.9% on the current share price of $93.53. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Armstrong World Industries has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Armstrong World Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Armstrong World Industries paid out just 15% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 38% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

NYSE:AWI Historical Dividend Yield, November 1st 2019

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Armstrong World Industries's earnings per share have been growing at 16% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Unfortunately Armstrong World Industries has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

From a dividend perspective, should investors buy or avoid Armstrong World Industries? We love that Armstrong World Industries 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. There's a lot to like about Armstrong World Industries, and we would prioritise taking a closer look at it.

Ever wonder what the future holds for Armstrong World Industries? See what the eight analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.