Installed Building Products, Inc. (NYSE:IBP) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of March to $1.95. This takes the annual payment to 1.3% of the current stock price, which unfortunately is below what the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Installed Building Products' stock price has increased by 46% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Installed Building Products

Installed Building Products' Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Installed Building Products' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 43.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 24% by next year, which is in a pretty sustainable range.

Installed Building Products Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The annual payment during the last 3 years was $1.20 in 2021, and the most recent fiscal year payment was $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

Investors could be attracted to the stock based on the quality of its payment history. 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.

Installed Building Products Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Installed Building Products is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.