All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 17.18%. The seller of gases for industrial, medical and other uses is paying out a dividend of $1.81 per share at the moment, with a dividend yield of 2.5% compared to the Chemical - Diversified industry's yield of 1.62% and the S&P 500's yield of 1.42%.
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 $13.20 per share, which represents a year-over-year growth rate of 9.73%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers its shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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).