Here's Why We're Wary Of Buying Armstrong World Industries' (NYSE:AWI) For Its Upcoming Dividend
Armstrong World Industries, Inc. (NYSE:AWI) stock is about to trade ex-dividend in 3 days. Investors can purchase shares before the 3rd of March in order to be eligible for this dividend, which will be paid on the 18th of March.
Armstrong World Industries's next dividend payment will be US$0.21 per share, on the back of last year when the company paid a total of US$0.84 to shareholders. Looking at the last 12 months of distributions, Armstrong World Industries has a trailing yield of approximately 1.0% on its current stock price of $85.58. 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.
View our latest analysis for Armstrong World Industries
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. Armstrong World Industries paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. What's good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow last year.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Armstrong World Industries was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Armstrong World Industries has delivered an average of 9.5% per year annual increase in its dividend, based on the past two years of dividend payments.
Get our latest analysis on Armstrong World Industries's balance sheet health here.
Final Takeaway
Should investors buy Armstrong World Industries for the upcoming dividend? It's hard to get used to Armstrong World Industries paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Armstrong World Industries.
With that being said, if you're still considering Armstrong World Industries as an investment, you'll find it beneficial to know what risks this stock is facing. For example - Armstrong World Industries has 1 warning sign we think you should be aware of.
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.
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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