Tuesday, April 15, 2008

APD Dividend Analysis

Air Products and Chemicals, Inc. offers atmospheric gases, process and specialty gases, performance materials, and equipment and services worldwide.
It is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 26 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 11.30 % to its shareholders.




At the same time company has managed to deliver a 7.30% average annual increase in its EPS since 1998.















The ROE has remained in the 10-20%. Range over the past 10 years with the exception of the 2000 lows below 5%.














Annual dividend payments have increased over the past 10 years by an average of 10% annually, which is higher than the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling almost every 7 years. If we look at historical data, going as far back as 1985, APD has actually managed to double its dividend payment every seven years on average.














If we invested $100,000 in APD on December 31, 1997 we would have bought 2432 shares (Adjusted for two 2:1 stock split in June 1998). In March 1998 your quarterly dividend income would have been $366. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1121 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 153 %. If you reinvested it though, your quarterly dividend income would have increased by 207%.















The dividend payout has remained at or below 50% over our study period with the exception of a brief spike in 2000. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.














I think that APD is attractively valued with its low price/earnings multiple of 20 and low DPR. The yield is below my 2% threshold though. I would consider entering into a position below $88.
Disclosure: I do not own shares of APD
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5 comments:

  1. Where do you get all your information from? I have been reading your blog a bit and I try to look up the information like ROE etc but I am being forced to read a lot of the old balance sheets to get this information. Is there someplace where these are more freely available?

    The dividends are available everywhere which is great.

    Also, keep up the good work.

    ReplyDelete
  2. I meant the dividend information is available everywhere. Sorry I didnt make that clear.

    ReplyDelete
  3. Guppy,

    You could check several years worth of statements.

    If you do not want to go through years of reports you might want to check morningstar:
    http://quicktake.morningstar.com/stocknet/Income10.aspx?Country=USA&Symbol=KO

    or Advfn,

    http://www.advfn.com/p.php?pid=financials&symbol=F&btn=annual_reports&start_date=4&annual_reports=1

    However, sometimes the data in morningstar and advfn does no agree with each other or with the financial statements.

    Hope that helps!

    ReplyDelete
  4. Sounds good. I will try that out.

    ReplyDelete
  5. I would like to know how much helium sales play in the bottom line of this company and Praxair (PX) as well.

    I have been reading some interesting things about this finite resource gas and some papers on modeling a helium commodities market (which doesn't exist now). The price of this gas is rising in leaps and bounds for a number of reasons- the biggest of which is the coming depletion of the formerly government owned Amarillo Texas helium reserves. Amarillo accounts for a third of the world's helium annually and will be gone in 8 to 10 years. Plus industrial use of the gas is rising 10 to 20 percent per year in asia.

    I understand APD and PX are two companies well positioned is this formerly back burner side business of natural gas extraction.

    ReplyDelete

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