Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and, of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Based in Allentown, Air Products and Chemicals (APD) is in the Basic Materials sector, and so far this year, shares have seen a price change of 23.04%. The seller of gases for industrial, medical and other uses is currently shelling out a dividend of $1.81 per share, with a dividend yield of 2.38%. This compares to the Chemical - Diversified industry's yield of 1.73% and the S&P 500's yield of 1.43%.
Looking at dividend growth, the company's current annualized dividend of $7.24 is up 1.7% from last year. Over the last 5 years, Air Products and Chemicals has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.01%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Air Products and Chemicals's current payout ratio is 56%, meaning it paid out 56% of its trailing 12-month EPS as dividend.
APD is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2026 is $13.16 per share, which represents a year-over-year growth rate of 9.39%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, APD presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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Air Products and Chemicals, Inc. (APD): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).