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Despite global economic headwinds, the materials sector continues to offer solid return-risk prospects for income investors. Our latest addition to the Best Material Dividend Stocks List has a smaller public profile but is well known by income investors for its four-decade history of higher payouts. A solid quarter of earnings and loyal customer base adds to its position as a strong portfolio diversifier.
Our pick reported higher-than-expected earnings and revenue growth for its fiscal third quarter and has announced a spate of new projects that are expected to strengthen its bottom line in 2023. The company continues to leverage its position in the hydrogen, air gasses and helium businesses to secure recurring revenue from its industrial customers.
To make room for our industrial gas producer, we’ve booked profits and sold off our holdings of a similar chemicals manufacturer due to its lower dividend yield.
You can check out the Best Material Dividend Stocks List to explore all the stocks.
Air Products & Chemicals (APD ) is an industrial gas and chemicals producer headquartered in Allentown, Pennsylvania. The company trades on the New York Stock Exchange and is a core component of the large-cap S&P 500 Index thanks to its large market capitalization. APD provides atmospheric industrial gases, specialty gases and performance materials to customers in the technology, energy, healthcare and industrial sectors, among others.
APD is coming off a solid fiscal third quarter, earning $2.62 per share on revenue of $3.2 billion. Analysts expected EPS growth of $2.61 on $3.1 billion in revenue. The company’s overall revenues increased by 22.4% year-over-year. More importantly, more than half of APD’s sales came from long-term contracts, signaling steady cash flows.
In terms of dividend growth, few companies in the materials sector offer APD’s 40-year history of higher payouts. APD’s quarterly dividend yield is on par with the broader materials average.
Our revamped rating system allows you to view different factors impacting a stock’s Dividend Safety Rating. You can also view separate ratings for Yield Attractiveness, Returns Risk and Returns Potential that can assist you in evaluating the risk-return potential of a particular stock.
APD has an overall Dividend Safety Rating of A.
APD receives top marks (A+) for Valuation (19.9x FY1 P/E, just above sector average), Earnings Growth (11% FY1 EPS growth) and Dividend Streak (40 years of consecutive dividend increases). The stock also scores an A for low leverage thanks to its 0.9x net debt / ntm ebitda.
APD receives an A for Returns Potential thanks to its 12% dividend CAGR in the last 3 years, putting it in the top 40% of the materials sector.
In terms of Returns Risk, APD scores an A for low controversy (A+, with 1% short interest), extensive coverage (A+, with 22 estimates from sell-side analysts) and in-line price swings (A, with 0.8 beta).
These factors help to offset a fairly weak Yield Attractiveness rating of C due to its low 2.6% forward dividend yield.
To make room for APD, we’ve booked profits and sold off our holdings of multinational chemical company Linde plc (LIN ), whose profile is similar to that of APD but comes with a lower dividend yield.
Use our Dividend Screener to find high-quality dividend-paying stocks that meet your investment criteria. You can also select stocks that were recently upgraded by our proprietary Dividend Safety Rating system.