There is a lot to be liked about Air Products and Chemicals, Inc. (NYSE:APD) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 2.8% to shareholders, making it a relatively attractive dividend stock. Does Air Products and Chemicals tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How does Air Products and Chemicals fare?
The current trailing twelve-month payout ratio for the stock is 64%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 53% which, assuming the share price stays the same, leads to a dividend yield of around 3.2%. However, EPS should increase to $8.13, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of APD it has increased its DPS from $1.76 to $4.4 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes APD a true dividend rockstar.
Relative to peers, Air Products and Chemicals generates a yield of 2.8%, which is high for Chemicals stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank Air Products and Chemicals as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three key aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for APD’s future growth? Take a look at our free research report of analyst consensus for APD’s outlook.
- Valuation: What is APD worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether APD is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.