Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Installed Building Products, Inc. (NYSE:IBP) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Installed Building Products' shares on or after the 14th of March, you won't be eligible to receive the dividend, when it is paid on the 31st of March.

The company's next dividend payment will be US$1.95 per share. Last year, in total, the company distributed US$3.00 to shareholders. Last year's total dividend payments show that Installed Building Products has a trailing yield of 1.3% on the current share price of US$237.86. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Installed Building Products can afford its dividend, and if the dividend could grow.

See our latest analysis for Installed Building Products

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. Installed Building Products is paying out just 15% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Installed Building Products generated enough free cash flow to afford its dividend. The good news is it paid out just 23% of its free cash flow in the last year.

It's positive to see that Installed Building Products's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Installed Building Products has grown its earnings rapidly, up 37% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Installed Building Products looks like a promising growth company.