Air Products & Chemicals, Inc. (APD): A Dividend Aristocrat Distributing Higher Dividends for 38 Straight Years

Dividend Analysis: Air Products

We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. APD’s long-term dividend and fundamental data charts can all be seen by clicking here.

Dividend Safety Score

Our Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

Air Products & Chemicals, Inc. (NYSE:APD) has a Dividend Safety Score of 45, which suggests that its dividend safety is about average. The company’s earnings and free cash flow payout ratios are reasonable at 54% and 64%, respectively. As seen below, APD’s earnings payout ratio has increased by about 10% over the last decade but has generally remained stable.

However, we can see that its payout ratio spiked up in 2009, highlighting the cyclicality of the business. We would prefer APD’s payout ratio remain below 50% because of its sensitivity to the economy, but its situation could be much worse.

Source: Simply Safe Dividends

APD’s sales fell by 21% in 2009, and its free cash flow per share plunged by more than 50%. The company is obviously not resistant to recessions, and its stock returned a very disappointing -48% in 2008. This sensitivity lowers APD’s Dividend Safety Score.

Source: Simply Safe Dividends

However, regardless of business conditions, we can see that APD has generated very reliable returns on invested capital. Management claims that every capital investment of more than $3 million is reviewed at the corporate level and must meet a strict 10% internal rate of return. The company appears to be allocating capital reasonably effectively.

Source: Simply Safe Dividends

APD has generated free cash flow every year, which is great, but it’s been volatile. This is because the projects APD invests in are very expensive and lumpy – they take years to build before generating any meaningful amount of cash flow. We expect free cash flow to keep trending higher as the company’s productivity improvements are made.

Source: Simply Safe Dividends