Air Products and Chemicals Doubles Dividends Almost Every 7 Years

Air Products and Chemicals, Inc. (APD) 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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Comments

[ChandlerLutz]

Good article, and I do agree with you that the company at these levels is a little expensive. Also, you mostly just mention past results. I am wondering what would drive future results? Would it be international expansion, entering new markets or cutting costs? They also seem to be carrying a lot of debt on their balance sheet. If they run into trouble with a global economic slowdown (and chemical companies can be rather cyclical) are they going to be able to get financing and compete with other international giants such as Dow or DuPont? I haven't researched this company thoroughly enough to answer any of these questions, but it would be a must know when considering a possible future investment.

[AmesTiedeman]

What a performance. Stocks that double their dividends every 7 years are wealth makers. This stock used to be talked about all the time by the money managers of the 1980's and 1990's. They were right.

[yank]

They are benefiting hugely from the weak USD. About 40% of their revenues are overseas. Thay have also posiitoned themselves to be the prime beneficiary of the hydrogen "boom". Based on announced price increases this month for helium and other specialty gases, cash flows for rest of 2008 should be huge. I see very little downside risk here.

[jackthebrit]

As a former employee who jumped ship into the technology sector a couple of years ago, I certainly appreciate the value of the shares I built up over the years when compared with those of my current employer, whose shares have traded in a ridiculous range from +40% to -20 % from when I joined. The stability and dependability of a stock like APD should not be underestimated. Definitely one to buy and hold for the long term