Linked here is a PDF copy of my detailed analysis of Air Products and Chemicals Inc. (APD) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Air Products and Chemicals Inc. produces industrial gases and specialty and intermediate chemicals and also has interests in environmental and energy-related businesses.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
APD is trading at a premium to all four valuations above. If I exclude the high and low valuation and average the remaining two, APD is trading at a 24.0% premium. APD had a Star deducted for trading at a premium in excess of 5%.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
APD earned two Stars in this section for 3.) and 4.) above. APD has paid a cash dividend to shareholders every year since 1954 and has increased its dividend payments for 26 consecutive years. It's one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating.
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)? 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:
APD earned no Stars in this section, and had one Star deducted for a negative NPV MMA Diff. The negative NPV MMA Diff. means that on a NPV basis for every $1,000 invested in APD you would earn $802 less than a MMA earning a 20-year average rate of 4.61%. If APD grows its dividend at 10.4% per year, it will never equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.
Other: APD is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. On the plus side, the industrial gases industry tends to have stable growth versus commodity chemicals. On the minus side, APD experiences volatile raw material cost in the chemical segment. APD has a relatively strong balance sheet.
Conclusion: APD lost one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and lost one Star in the Dividend Income vs. MMA section for a net total of zero Stars. This quantitatively ranks APD as a 0 Star-Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $61.74 before APD's NPV MMA Diff. increases to the $3,000 NPV MMA Diff. I like to see. At that price APD would yield 2.75%. Given APD's current valuation, I will not be purchasing shares anytime soon.
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 do not own shares of APD (0.0% of my Income Portfolio).
What are your thoughts on APD?
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