All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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
Headquartered in Allentown, Air Products and Chemicals (APD) is a Basic Materials stock that has seen a price change of -4.64% so far this year. The seller of gases for industrial, medical and other uses is paying out a dividend of $1.16 per share at the moment, with a dividend yield of 2.07% compared to the Chemical - Diversified industry's yield of 1.78% and the S&P 500's yield of 2.02%.
In terms of dividend growth, the company's current annualized dividend of $4.64 is up 1.3% from last year. Over the last 5 years, 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. Air Products and Chemicals's current payout ratio is 55%, meaning 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 $9.52 per share, representing a year-over-year earnings growth rate of 15.96%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious 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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Air Products and Chemicals, Inc. (APD) : Free Stock Analysis Report
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