Air Products and Chemicals (NYSE:APD) Has Announced That It Will Be Increasing Its Dividend To $1.75

Air Products and Chemicals, Inc. (NYSE:APD) will increase its dividend from last year's comparable payment on the 8th of May to $1.75. This takes the annual payment to 2.1% of the current stock price, which is about average for the industry.

See our latest analysis for Air Products and Chemicals

Air Products and Chemicals' Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Air Products and Chemicals' dividend was only 63% of earnings, however it was paying out 474% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 41.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which is in the range that makes us comfortable with the sustainability of the dividend.

Air Products and Chemicals Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $2.56 in 2013 to the most recent total annual payment of $6.48. This works out to be a compound annual growth rate (CAGR) of approximately 9.7% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

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 Air Products and Chemicals has been growing its earnings per share at 14% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Air Products and Chemicals' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Air Products and Chemicals' payments are rock solid. While Air Products and Chemicals is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Air Products and Chemicals that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.