Praxair’s dividend yield
As of June 6, Praxair’s current dividend yield was 2.0%—a decline compared to the first-quarter dividend yield of 2.3%. Air Products and Chemicals (APD), LyondellBasell (LYB), and International Flavors and Fragrances (IFF) have dividend yields of 2.7%, 3.8%, and 2.2%, respectively.
Praxair’s current dividend yield is the lowest among its peers. Praxair’s Treasury yields are lower than the yield generated by one-year Treasury bonds. As a result, Praxair becomes less attractive to long-term and dividend investors. Praxair has been increasing its dividend rate annually, but it hasn’t been strong enough to increase the dividend yield. As we saw in the previous part, Praxair has been using more than 50% of its free cash flows to pay dividends, which leaves little scope for another increase in dividend rates unless the free cash flow continues to strengthen.
Typically, the dividend yield measures how much cash investors get in return for every dollar they invest in a company’s equity—apart from possible capital gains. Dividends provide constant cash flows for long-term investors. Before investing in a company, investors should check out the financials to see if the company is strong enough to support and sustain its current and future dividend payments.
Why dividend yields aren’t rising
Since 2012, Praxair’s dividend rate has grown 7% on a compound annual growth rate basis. For the same period, Praxair’s stock price has grown marginally higher than the dividend rate. Praxair’s stock price increased from $107.85 in 2012 to $154.68 by the end of 2017. On a year-to-date basis, the stock has risen 4.9% and negated the impact of the 4.8% dividend increase in the first quarter. Praxair’s dividend yield has largely remained range bounded between 2.0% and 2.6%.
Investors can hold Praxair indirectly by investing in the iShares U.S. Basic Materials ETF (IYM). IYM has invested 6.6% of its portfolio in Praxair.