Armstrong World Industries, Inc.'s (NYSE:AWI) periodic dividend will be increasing on the 21st of November to $0.308, with investors receiving 10.0% more than last year's $0.28. Although the dividend is now higher, the yield is only 0.8%, which is below the industry average.

See our latest analysis for Armstrong World Industries

Armstrong World Industries' Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Armstrong World Industries' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 41.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 17%, which is in the range that makes us comfortable with the sustainability of the dividend.

Armstrong World Industries Doesn't Have A Long Payment History

Armstrong World Industries' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 6 years was $0.70 in 2018, and the most recent fiscal year payment was $1.12. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. Armstrong World Industries has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

The Dividend Has Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Armstrong World Industries has been growing its earnings per share at 6.5% a year over the past five years. Armstrong World Industries definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Armstrong World Industries that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.