On January 26, 2017, Praxair (PX) announced a dividend of $0.79 per share for 1Q17 on the company’s outstanding common stock. The dividend will be payable on March 15 to shareholders with a record date of March 7, 2017. Praxair’s peer Air Products and Chemical (APD) paid a dividend of $0.86 per share for 1Q17.
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Praxair has increased its annual dividend for 24 consecutive years. In 1993, Praxair declared an annual dividend of $0.13. If the current dividend is maintained for the rest of 2017, then Praxair’s annual dividend for 2017 is projected at $3.15 per share. Since 2011, Praxair’s dividend has grown at a CAGR (compound annual growth rate) of 8.5%.
It’s important for investors to know whether a company is generating enough free cash flow to sustain dividend growth, as dividends are usually paid out of free cash flows. For our analysis, we’ll consider the free cash flow generated by Praxair and convert it into free cash flow per share. Since 2011, PX’s free cash flow per share has grown at a CAGR of 15.8% as of the end of 2016, which is higher than the PX’s dividend growth of 8.5% over the same period. This is a clear indication that Praxair’s free cash flows can easily support its dividend growth, which is a good sign for both investors and Praxair.
Investors can indirectly hold Praxair by investing in the Materials Select Sector SPDR Fund ETF (XLB), which invests 5.7% of its portfolio in Praxair. The top holdings of the fund include Dow Chemical (DOW), and DuPont (DD), which have weights of 12.3% and 12%, respectively, as of March 14, 2017.
In the next part, we’ll look into Praxair’s dividend payout and the current dividend yield.