Air Products and Chemicals (NYSE:APD) Will Pay A Larger Dividend Than Last Year At $1.77

Air Products and Chemicals, Inc. (NYSE:APD) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of May to $1.77. This will take the dividend yield to an attractive 2.9%, providing a nice boost to shareholder returns.

See our latest analysis for Air Products and Chemicals

Air Products and Chemicals' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Air Products and Chemicals' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 55.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 47% by next year, which is in a pretty sustainable range.

Air Products and Chemicals Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from $2.84 total annually to $7.08. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% 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.

Air Products and Chemicals Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Air Products and Chemicals has grown earnings per share at 6.9% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Air Products and Chemicals that you should be aware of before investing. 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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