Last update on 2024-06-27

Air Products & Chemicals (APD) - Dividend Analysis (Final Score: 7/8)

Comprehensive dividend analysis of Air Products & Chemicals (APD) with final score of 7/8, assessing performance and stability of the company's dividend policy.

Short Analysis - Dividend Score: 7

We're running Air Products & Chemicals (APD) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a crucial indicator showing how much a company pays out in dividends relative to its stock price.

As of 2023, Air Products & Chemicals (APD) has a dividend yield of 2.5566%, which is significantly lower than the industry average of 4.85%. Historically, APD's dividend yield has fluctuated but has generally remained lower than the industry average, with notable spikes in 2008 (3.7847%) and 2016 (2.9898%). This trend indicates that while APD pays consistent dividends, it's less lucrative compared to its peers. Nevertheless, the rising stock price, from $48.87 in 2003 to $273.8 in 2023, implies robust capital appreciation compensating for the lower yield.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures how much a company's dividend payments have increased over time, which is a key indicator of financial health and shareholder value.

Over the last 20 years, Air Products & Chemicals (APD) has exhibited an average dividend growth rate of 10.95%, which is significantly above the 5% benchmark. This consistent growth trend is promising as it suggests that APD not only values shareholder returns but also has a stable financial footing and robust earnings potential. However, while most years show positive growth, the negative spike in 2018 (-7.37%) should be noted as an anomaly but does not heavily impact the long-term positive trend.

Average annual Payout Ratio lower than 65% in the last 20 years?

A company's payout ratio is the percentage of earnings paid to shareholders in dividends. An average payout ratio lower than 65% over a long period indicates a company's stability and sustainability in its dividend payments. It is important because it suggests that the company retains a significant portion of its earnings for growth and to buffer against downturns.

The average payout ratio of Air Products & Chemicals (APD) over the last 20 years is 56.62%. This is well below the 65% threshold, signaling a healthy balance between returning profits to shareholders and reinvesting in the business. Reviewing individual years, the ratio slightly exceeded 65% in a couple of instances (2014 and 2023), hitting 66.83% and 67.65% respectively. However, these are outliers in an otherwise solid track record. Therefore, APD exhibits a beneficial payout ratio trend, affirming its robust and sustainable dividend policy.

Dividends Well Covered by Earnings?

This criterion evaluates if the company's earnings per share (EPS) sufficiently cover its dividends per share. A healthy coverage ratio indicates that the company generates enough earnings to sustain its dividend payouts, which is crucial for dividend stability.

Evaluating Air Products & Chemicals' (APD) EPS and dividend per share coverage from 2003 to 2023, we see a mixed but generally positive trend. The EPS increased over time from $1.78 in 2003 to $10.35 in 2023. On the other hand, the dividend per share also saw a substantial increase from $0.90 in 2003 to $7.00 in 2023. The coverage ratios fluctuated, with notable lows around 2016 when the ratio was significantly affected by a temporary dip in EPS. However, the general trend shows that the dividends are well-covered, with recent years showing coverage ratios consistently above 0.60. The 2023 ratio stands at approximately 0.68, which is a good indicator that APD's dividends are well covered by its earnings, showing financial prudence and sustainability.

Dividends Well Covered by Cash Flow?

This criterion evaluates if the company's dividends are well covered by its free cash flow, which is crucial to ensure that the business can sustain its dividend payouts without resorting to debt or depleting cash reserves.

Air Products & Chemicals' ratio of dividend coverage by cash flow has varied significantly over the past two decades, showing values such as 3.458 in 2006 and a concerning -1.054 in 2023. A ratio above 1 indicates that dividends are well covered, thus, years with ratios below 1 (e.g., 0.446 in 2003 and 0.576 in 2004) suggest that the company struggled to cover dividends from its free cash flow. The most alarming metric is observed in recent 2023, where the coverage dropped to a negative figure. This negative ratio in 2023 indicates that the free cash flow was not only insufficient to cover the dividends, but in fact, was negative, raising concerns about the sustainability of future dividends.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends ensure reliable income, which is crucial for income-seeking investors. A drop by more than 20% affects investor confidence.

Air Products & Chemicals (APD) has shown a consistent increase in its dividend per share (DPS) over the last 20 years. Starting from a DPS of $0.90 in 2003 and reaching a DPS of $7.00 in 2023, the company has consistently raised its dividends almost every year. This trend is impressive and indicative of robust financial health and strong cash flow generation. However, a notable exception occurred in the year 2016, where the DPS dropped from $4.75 to $4.40, representing a decline of 7.37%. Although this decrease did not meet the 20% threshold, it is still worth considering. Overall, the trend is positive for long-term income-seeking investors as it shows the company's commitment to returning value to its shareholders despite the minor decrease in 2016.

Dividends Paid for Over 25 Years?

Determine if the company has paid dividends for over 25 years and why it is an important consideration

The analysis of the data from 1998 to 2023 shows that Air Products & Chemicals (APD) has consistently paid dividends for the past 26 years. The range of dividend per share starting from $0.81 in 1998 to $7 in 2023 exhibits a steady increase over the years. This continuous dividend payment is a good indicator of the company’s financial health and commitment to returning value to shareholders. For investors, a long history of dividend payments often signifies a stable and reliable income stream. Moreover, it reflects positively on the company's ability to generate sufficient earnings and cash flow consistently to support dividend payouts. The increasing trend in dividend per share also underscores Air Products & Chemicals’ growth and profitability over time.

Reliable Stock Repurchases Over the Past 20 Years?

Review the history of stock repurchases for Air Products & Chemicals (APD) over the past 20 years to determine reliability.

Over the past 20 years, Air Products & Chemicals (APD) has shown a mixed picture in terms of stock repurchases. The number of shares outstanding decreased notably in specific years (2006, 2007, 2008, 2009, 2012, 2013, and 2019), which are identified as reliable repurchase years. However, the overall average repurchase rate stands at -0.0208, indicating a general reduction in the number of shares. This trend may be viewed positively as share repurchases often lead to an increase in earnings per share (EPS) and can signal confidence in the company's future performance. Given the average rate and the specific years of repurchases, the overall trend can be considered moderately positive, suggesting that APD has made concerted efforts to reduce shares, though not consistently every year.