Air Products and Chemicals' (NYSE:APD) Shareholders Will Receive A Bigger Dividend Than Last Year

Air Products and Chemicals, Inc.'s (NYSE:APD) dividend will be increasing to US$1.62 on 9th of May. This takes the dividend yield to 2.5%, which shareholders will be pleased with.

Check out our latest analysis for Air Products and Chemicals

Air Products and Chemicals' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Air Products and Chemicals' dividend was only 63% of earnings, however it was paying out 162% 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.

The next year is set to see EPS grow by 11.6%. If the dividend continues on this path, the payout ratio could be 63% by next year, which we think can be pretty sustainable going forward.

Air Products and Chemicals Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the first annual payment was US$2.32, compared to the most recent full-year payment of US$6.48. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Air Products and Chemicals has impressed us by growing EPS at 14% per 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

Overall, we always like to see the dividend being raised, but we don't think Air Products and Chemicals will make a great income stock. While Air Products and Chemicals is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Air Products and Chemicals that investors need to be conscious of moving forward. Is Air Products and Chemicals not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.