Air Products and Chemicals, Inc.'s (NYSE:APD) dividend will be increasing from last year's payment of the same period to $1.79 on 12th of May. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.

Check out our latest analysis for Air Products and Chemicals

Air Products and Chemicals' Projected Earnings Seem Likely To Cover Future Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Air Products and Chemicals' earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

EPS is set to fall by 2.1% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 46%, which is comfortable for the company to continue in the future.

Air Products and Chemicals Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $3.08 in 2015 to the most recent total annual payment of $7.16. This means that it has been growing its distributions at 8.8% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Air Products and Chemicals has impressed us by growing EPS at 15% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Air Products and Chemicals' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Air Products and Chemicals is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for Air Products and Chemicals (1 is potentially serious!) that you should be aware of before investing. Is Air Products and Chemicals not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.