Over the past decade this dividend stock has delivered an average total return of 11.80% to its shareholders.
The company has managed to deliver a 20.20% average annual increase in its EPS over the past decade, largely due to low earnings in 2000. Analysts are expecting an increase in EPS to $4.98 for 2010 and $5.63 by 2011. This would be a nice increase from the 2009 earnings per share of $3.
The company is one of the largest producers of industrial gases and also owns a large specialty chemicals business. The potential areas of growth include growth in industrial gases, including electronics, hydrogen for petroleum refining, health care and Asian operations. The market for industrial gases gas increased at double the rate of the economy over the past years, which could be another driver of revenue growth. Air Products and Chemicals has announced its intent to acquire Airgas (ARG) in an unfriendly take-over in February 2010. This deal could benefit the company through cost savings if successful.
The Return on Equity has been stable around 15% over the past decade. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Annual dividend payments have increased by an average of 10.30% since 2000, which is lower than the growth in EPS. The company last raised its dividend by 8.90% in February 2010, for the 28th year in a row.
A 10 % growth in dividends translates into the dividend payment doubling every seven years. If we look at historical data, going as far back as 1983, Air Products and Chemicals has indeed managed to double its dividend payment every seven years on average.
The dividend payout ratio remained below 50% for the majority of the past decade, with the exception of 2000 and 2009. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Air Products and Chemicals is trading at 17.30 times earnings and yields 2.90%. In comparison Praxair (PX) trades at a P/E multiple of 19 and yields 2.40%. I consider Air Products and Chemicals attractively valued at the moment.
Full Disclosure: Long APD
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