The board of Installed Building Products, Inc. (NYSE:IBP) has announced that it will pay a dividend of $0.35 per share on the 30th of June. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.

Check out our latest analysis for Installed Building Products

Installed Building Products' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Installed Building Products was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 33.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

Installed Building Products Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2021, the annual payment back then was $1.20, compared to the most recent full-year payment of $3.00. This works out to be a compound annual growth rate (CAGR) of approximately 36% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Installed Building Products has been growing its earnings per share at 37% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Installed Building Products' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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 2 warning signs for Installed Building Products 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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