Air Products & Chemicals Dividend Stock Analysis (APD)
Air Products & Chemicals Dividend
Current Dividend: $3.80
Dividend Yield: 2.6%
Cash Dividend Payout Ratio: 48%
Market Capitalization: 31 B
Enterprise Value: 32 B
Sector: Basic Materials
Air Products & Chemicals is the world’s largest supplier of hydrogen and helium. APD products and services operations include four segments: Merchant Gases, Tonnage Gases, Electronics and Performance Materials, Equipment and Energy.
The company provides products and services in over 50 countries (60% international), employs over 20,000 workers, and generates approximately 10 billion in revenue annually. Customers include companies in the healthcare, technology, industrial, and energy sectors.
Consolidation has produced an industry where the top four companies (including Air Products) capture nearly 80% of the industry revenues. This provides a better environment for maintaining healthy margins than APD has dealt with in the past.
Many Air Products customers have reliability of supply as their #1 priority. This is a major competitive advantage for APD and allows them to gain long term contracts that are beneficial for their customers and the company’s profitability.
Hydrogen is used in the process of upgrading heavy crude oils and reducing sulfur content. Higher environmental standards and changes in the crude mix (heavier crude oil) being processed are favorable long term trends for APD and their already 40% share of the hydrogen market.
Air Products operating margins are significantly below those of companies such as industry leader Praxair. The company is attempting to rectify this weakness through new projects, cost cutting, and improvements in efficiency.
Since Air Products sold it’s packaged gas business to Airgas in 2002, it has lacked an important piece of the sales channel. Attempts to reacquire the business have been unsuccessful.
Relatively new CEO Seifi Ghasemi comes to APD with outstanding credentials and experience. He has a strong vision for the company that includes improved margins and continued emphasis on returning capital to shareholders.
Air Products is vulnerable to economic downturns. Many indicators for industrial gases are moving in the wrong direction. The glut in oil inventories will likely lead to less demand for hydrogen. Slow global economic growth in general (especially Europe) affect demand for APD products. In addition, a strong dollar can hurt short term results.
Dividend Analyzer Checklist
(updated November 2016)
Dividend Safety Score (17/33 points)
Dividend Per Share (ttm): $4.25
Dividend Payout Ratio (ttm): 114%
Dividend Per Share (10 Year Growth): 12.2%
Cash From Operations (CFO) Per Share (ttm): $12.41
CFO Dividend Coverage (CFO / DPS): 2.9 (3/6 points)
Free Cash Flow (FCF) Per Share (ttm): $7.57
FCF Dividend Coverage (FCF / DPS): 1.8 (3/6 points)
Net Financial Debt: $4724 M
Total Assets: $18055 M
Net Financial Debt / Total Assets: 26% (5/12 points)
Net Financial Debt to EBITDA (ttm): 186%
Total Liabilities to Assets Ratio (Qtr.): 61%
Piotroski Score (1-9) (TTM): (6/9 points)
Profitability & Growth Score (16/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 0.8% (0/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 7.8% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 7.2% (6/6 points)
Operating Earnings Yield (ttm): 7.2% (3/7 points)
Net Income (ttm): $631 M
Gross Profit (ttm): $3119 M
Total Assets: $18055 M
Gross Profitability Ratio = GP / Total Assets: 17% (3/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 13%
Return on Invested Capital (ROIC): 5%
Return on Invested Capital (ROIC) (5 Year Median): 8%
Return on Invested Capital (ROIC) (10 Year Median): 10%
Valuation Score (18/34 points)
Free Cash Flow Yield (ttm): 5.7% (6/9 points)
EV to EBIT (ttm): 15.0 (5/9 points)
EV to EBITDA (ttm): 10.6 (5/9 points)
PE10: 29.5 (2/7 points)
Price to Sales Ratio (ttm): 3.1
Price to Book Value (ttm): 4.1
Price to Earnings Ratio (P/E) (ttm): 46.1
TOTAL POINTS – (51/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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(updated November 2016)
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Average Choice
Looking For Exposure to Basic Materials Sector / Slightly Better Than Average Choice
Deep Value Investors / Avoid
Air Products & Chemicals is ranked #120 (out of 247) overall and #8 (out of 23) in the Basic Material sector by the Dividend Analyzer.
APD doesn’t have any glaring deficiencies in our analysis, but neither does it have anything outstanding to report. It’s an average stock in our database with an average yield and an average valuation.
Portfolio Position Disclosures:
DVB Foundation Portfolio – None
DVB Dividend Growth – None
DVB High Income – None
Arbor Asset Allocation Model Portfolio (AAAMP) – None
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