Company Description: Air Products and Chemicals Inc. is a major producer of industrial gases and electronics and specialty chemicals also has interests in environmental and energy-related businesses.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
APD is trading at a premium to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a 44.8% premium to its calculated fair value of $188.76. APD did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
APD earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. APD earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1954 and has increased its dividend payments for 39 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $121 is below the $500 target I look for in a stock that has increased dividends as long as APD has. The stock's current yield of 3.12% exceeds the 2.74% estimated 20-year average MMA rate.
Peers: The company's peer group includes: The company's peer group includes: L'Air Liquide SA (AiQUY) with a 2.1% yield and BHP Group (BHP) with a 4.4% yield.
Conclusion: APD did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks APD as a 2-Star Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $195.53 before APD's NPV MMA Differential increase to the $500 minimum that I look for in a stock with 39 years of consecutive dividend increases. At that price the stock would yield 4.4%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 3.9%. This dividend growth rate is above the 0.4% used in this analysis, thus providing no margin of safety. APD has a risk rating of 1.75 which classifies it as a Medium risk stock.
The company's Free Cash Flow Payout at 293% (up from 79%) is significantly above my acceptable level of 60%, and its Debt to Total Capital at 38% (up from 26%) is well below the 45% maximum I look for. APD is trading at a premium to my calculated fair value of $188.76. Given its dividend fundamentals and valuations, I wait before initiating a position in the company.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in APD (0.0% of my Dividend Growth Portfolio).
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