Portfolio Update
The FiveTwenty portfolio received $31.31 in dividends in the past week. OZK paid their quarterly dividend during the week.
| Past Week Dividend | $31.31 |
| Current Quarter Dividend (Q2 2022) | $183.11 |
| Estimated Annual Dividend | $4,991.42 |
| LifeTime Dividend | $3,467.78 |
The capital allocation for the week of 04/24/2022 to 04/30/2022 will be used to establish a position in Air Products and Chemicals (NYSE: APD)
APD – Company Profile
Air Products and Chemicals, Inc (APD) is an international corporation whose principal business is selling gases and chemicals for industrial uses. APD also designs and manufactures equipment for air separation, hydrocarbon recovery and purification, natural gas liquefaction, and liquid helium and liquid hydrogen transport and storage. The company was founded in 1940 and is headquartered in Allentown, Pennsylvania. Official Site | Wikipedia
| Dividend Streak | 40 years |
| Yield | 2.52% |
| Payout Ratio | 64.97%1 |
| P/E | 25.791 |
1 computed using TTM adjusted EPS of $9.42 as of Q1 2022
Financials
Does APD have the financial means to sustain and raise its dividend going forward?
During the last decade, APD went through a significant reorganization. On 10/01/2016, the company spun-off its Electroncis Materials Division as Versum Materials. That transaction was followed, by the sale of the Performance Materials Division on 01/03/2017 for $3.8 billion in cash. Almost all the entire decrease of revenue in 2015 and 2016 owes to the restatement of the revenues for those years to remove revenues from discontinued operations. Similarly, about $1.8 billion of the 2017 after tax income comes from the sale of the APD division.
However, when we look at the numbers from 2018 to 2021, APD has grown both its revenue and net income. Net income growth has been more consistent than revenue which saw small declines in 2019 and 2020 from the previous years before roaring back in 2021.
In the past 10 years, GAAP EPS has been affected by the re-org transactions in a similar fashion as net income. Adjusted EPS, on the other hand, show a more consistent growing trend, which was more in line with the company’s stated goals of growing EPS at 10% rate on a yearly basis during the middle of the decade.
The average dividend per share growth rate was 9.6% per year in the past 10 years and 11.2% per year in the past 3 years. (per GuruFocus) The strong dividend growth over the last decade has come at cost of an expanding payout ratio during the same time. The payout ratio expanded from about 52% in 2013 to just shy of 67% at the end of 2021.
ADP in 2022 and beyond
For Q1 2022, ADP grew revenue 26%, increased adjusted net earnings 18.9%, and booked adjusted EPS 18.9% higher than Q1 2021.
During the earnings report the company re-affirmed its full year adjusted EPS guidance of $10.20 to $10.40 and increase of 13% to 15% over 2021. The company also re-iterated the $4.5 to $5.0 billion goal for capital expenditure for
Valuation
Are we paying too much for APD at the current share price?
In the last 10 years, APD’s P/E ratio saw a low of 9.29 and a high of 58.19, with a median value of 24.6. (per GuruFocus) The current TTM P/E ratio of 25.52 is just a little bit higher than the median.
The current share price of $242.92 is 1.2% above the 50-day moving average and 11.2% below the 200-day moving average. Additionally, the share price is near the 25th percentile of the 52 week trading range.
Yield
How does the current dividend yield for APD compare to historical values?
In the last 10 years, the dividend yield for APD has been in a range of 1.68% to 3.47%, with a median of 2.47%. (per Gurufocus) The current TTM yield of 2.52% is slightly above the media.
In addition, on 02/03/2022 ADP increased its quarterly dividend 8% to $1.62 per share. which pushes the FWD yield to 2.67%.
Thesis
Why are we adding APD to the FiveTwenty portfolio?
APD has a long history of dividend payouts and dividend growth. The stated shareholder value principle of increasing the per share value of the stock as well as the consistent EPS growth during the last decade, should enable future dividend growth.
The current payout ratio of about 65% is a bit higher than we like to see. However, the most recent increase of 8% announced on 02/03/2022, signals management’s confidence in the outlook for fiscal year 2022. If the top range of the forecast is met the payout ratio will drop to about 62%. Either way we believe the dividend to be safe in the immediate future.
Additional Research
Photo by American Public Power Association on Unsplash
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