Friday, June 29, 2012

Air Products and Chemicals (APD) Dividend Stock Analysis

Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. This dividend aristocrat has paid distributions since 1954 and increased dividends on its common stock for 30 years in a row.

The company’s last dividend increase was in March 2012 when the Board of Directors approved a 10.30% increase to 64 cents/share. The company’s largest competitors include Airgas (ARG), Praxair (PX) and Air Liquide (AIQUY).

Over the past decade this dividend growth stock has delivered an annualized total return of 7.10% to its shareholders.


The company has managed to deliver 10% in annual EPS growth since 2002. Analysts expect Air Products and Chemicals to earn $5.57 per share in 2012 and $6.35 per share in 2013. In comparison Air Products and Chemicals earned $5.59/share in 2011.

Air Products and Chemicals is expected to post a 5% growth in sales, due to strong demand for industrial gases in rapidly growing economies in Asia. Long term growth will be driven by acquisitions, expansion into rapidly growing markets in South America and Asia. In addition, new business initiatives such as its Tonnage Gases Business will lead to 10 – 15% increases in EPS by 2013.

While European divisions have been operating in a tough environment, Air Products and Chemicals is attempting to streamline operations and manage costs strategically.

The return on equity has increased from 16% in 2002 to 22% in 2011. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 11.70% per year over the past decade, which is higher than to the growth in EPS.

A 12% growth in distributions translates into the dividend payment doubling every six years. If we look at historical data, going as far back as 1985 we see that Air Products and Chemicals has managed to double its dividend every seven years on average.

The dividend payout ratio remained at or below 40% over the past decade, with the exception of two brief spikes in 2003 and 2009. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Air Products and Chemicals is attractively valued at 14 times earnings, yields 3.20% and has an adequately covered dividend. I would consider adding to my position in the stock subject to availability of funds.

Full Disclosure: Long APD

Relevant Articles:

Dividend Aristocrats List for 2012
Three Companies Boosting Distributions
Why I am a dividend growth investor?
Diversified Dividend Portfolios – Don’t forget about quality

2 comments:

  1. It's hardly an empirical tool but APD also meets Lynch's criteria of seeking out boring companies with boring names. The dividend growth rate might be looking at a decrease in the future but I am with you on it looking attractive given that it is about 10% off its YTD high.

    ReplyDelete
  2. what's your opinion on Pershing Square (Bill Ackman) taking a nearly 10% stake (which was preceded by the "shareholder rights plan") in APD?

    with his history of "activism" are you concerned for the health of the company?

    ReplyDelete

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