Are You Looking for a High-Growth Dividend Stock? Air Products and Chemicals (APD) Could Be a Great Choice
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Air Products and Chemicals in Focus
Based in Allentown, Air Products and Chemicals (APD) is in the Basic Materials sector, and so far this year, shares have seen a price change of -15.06%. Currently paying a dividend of $1.16 per share, the company has a dividend yield of 2.69%. In comparison, the Chemical - Diversified industry's yield is 2.6%, while the S&P 500's yield is 2.37%.
Taking a look at the company's dividend growth, its current annualized dividend of $5.36 is up 17% from last year. In the past five-year period, Air Products and Chemicals has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.73%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Air Products and Chemicals's payout ratio is 55%, which means it paid out 55% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, APD expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $9.27 per share, with earnings expected to increase 12.91% from the year ago period.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, APD is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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