Air Products & Chemicals is the 30th stock in my portfolio and the first from the basic materials sector. I've researched many materials stocks and concluded APD would best fit my objectives. I've been looking to add this one for quite a while and have had a number of different limit orders which never filled for one reason or another. Over the weekend I placed a new order which triggered at $77.54. I bought 16 shares that come with a 3.28% yield after commissions.
To be fair, all is not rosy at Air Products right now. The company had a subpar year which is why it's trading at the 52 week low. Earnings are mostly flat; sales were lower in a number of segments; management admits mistakes (which I actually appreciate, I like honesty). 2013 is forecasted to be another slow year, although better than 2012, with mild earnings growth. The success of this company is impacted by the U.S. and world economy more than the typical dividend growth stocks I buy. APD is currently planning a number of new projects throughout the world but seems to focus mainly in China. There are projects in other countries such as South Korea, Belgium, UK and US. Overall it appears earnings should be up next year in the 5-8% range. Obviously this is just a forecast.
I like Air Products for a number of reasons. First of all I think it offers a lot of value at today's prices. It has a reasonable P/E of 14.3 and an attractive yield with a 30 history of dividend growth. I have a target price of $83 on this stock and was able to pick up shares less than that. The fact that I can get a quality dividend champion trading at 52 week lows validates my thoughts. In my opinion, APD is the best dividend growth stock from the materials sector. This is for my strategy; I require a yield of at least 2.75%.
It is interesting to note that when I wrote about Air Products back in March it had a high beta of 1.29. Since that time the beta has actually decreased to about 1.16. I typically prefer low beta stocks, but it's not a rule set in stone. If the world economy does pick up APD should do very very well. I also like the fact that APD operates a number of different businesses serving a wide variety of industries. This company is not a one trick pony.
Some of Air Products biggest competitors include Praxair (PX) and Airgas (ARG). Both of these stocks are dividend contenders but have low yields around 2%. Not my cup of tea but could fit different investment strategies.
I calculated a fair value around $81, so pretty much the same as you. I'd like for it to pullback a little bit more to get a bigger margin of safety but APD should be fine once the global economy rights itself. Nice buy here.
ReplyDeleteI'd be willing to buy at $83. That said if the market keeps trending down you'll likely have some chances to get even better prices than I paid. It could set new 52 week lows, we don't know. I distinctly remember APD in the $90's earlier this year, it's on sale right now IMO.
DeleteNice purchase! APD has been on my watch list for a long time, but I have always found something more attractive to buy. However, if the price were to continue to fall, then I would consider initiating a position.
ReplyDeleteYes it's been on my watch list for eons, but something else always seemed to be better valued. Now was the time for me to scoop some up as I don't think many stocks are as attractive. I'm buying this one on bad news at a point where the negatives are already factored in. The stock is down but not out IMO. Of course the world economy could fall back into a recession and Air Products would likely be a disappointment. At least I can collect the dividends if that happens.
DeleteGreat buy! I got in last week, and it looks like you were able to get in at a much more attractive price. I may add more on further dips. The current yield and dividend growth rate make APD a solid buy at these levels.
ReplyDeleteMeh a few bucks for APD isn't that big of a difference. I understand wanting to get the best possible value though.
DeleteI set the limit order fully expecting it not to fill until possibly November, or maybe never. But it did trigger, so I'll take it! I'm not in a rush to make purchases at the moment, these APD shares won't pay until 2013 anyways...
I got into APD back in June at just 2 cents higher than your order, but because I'm still just getting started I didn't grab much. I actually managed to get in at $76.88 for my second purchase a few days later. Overall, my average cost per share is $77.11 just below where it's trading now.
ReplyDeleteI would absolutely put more into it now if it wasn't already one of my leading holdings. I do think it could test new 52-week lows ahead, which would be nice because I might be ready to grab more. As for their long term prospects, I agree things aren't rosy right now but I feel good about them (beyond the next 1-2 years.)
They are volatile. Since June, I have seen it up over 10% and now not even a quarter of a percent. From day to day you're looking at 3-5% swings on very little relevant news, IMHO.
Thanks for the assessment. I'd rather buy during times of distress anyways. The dividend is not in danger with this one, but perhaps the dividend growth might slow down a bit. I think they'll be good long term as well (or I wouldn't bother buying it).
DeleteYea APD is pretty volatile I'm prepared for that. It seems that world economic news and business conditions affect the company quite a bit. A lot different than than utility and consumer staples stocks.
Nice to hear from you!
I'm always on the hunt for dividend growth companies i've never heard of, and this is one of them. If it's ok with you, i'd like to add your blog to my blogroll.
ReplyDeleteYes you can add me. I'll check out your site when I have a minute!
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