Investors who want to cash in on Air Products and Chemicals, Inc.’s (NYSE:APD) upcoming dividend of US$1.16 per share have only 4 days left to buy the shares before its ex-dividend date, 29 March 2019, in time for dividends payable on the 13 May 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Air Products and Chemicals’s latest financial data to analyse its dividend characteristics.
5 checks you should do on a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How well does Air Products and Chemicals fit our criteria?
The company currently pays out 59% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 50% which, assuming the share price stays the same, leads to a dividend yield of around 2.6%. However, EPS should increase to $8.32, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. APD has increased its DPS from $1.8 to $4.64 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, Air Products and Chemicals has a yield of 2.5%, which is high for Chemicals stocks but still below the market’s top dividend payers.
Taking into account the dividend metrics, Air Products and Chemicals ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for APD’s future growth? Take a look at our free research report of analyst consensus for APD’s outlook.
- Valuation: What is APD worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether APD is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.