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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Air Products and Chemicals, Inc. (NYSE:APD) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 30th of September will not receive this dividend, which will be paid on the 11th of November.
Air Products and Chemicals's next dividend payment will be US$1.2 per share, and in the last 12 months, the company paid a total of US$4.6 per share. Looking at the last 12 months of distributions, Air Products and Chemicals has a trailing yield of approximately 2.1% on its current stock price of $220.63. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Air Products and Chemicals
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Air Products and Chemicals is paying out an acceptable 58% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Air Products and Chemicals paid out more free cash flow than it generated - 125%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Air Products and Chemicals paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Air Products and Chemicals's ability to maintain its dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Air Products and Chemicals's earnings per share have risen 10% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.