Screening For Dividends: My Top Pick In Materials

Core Insights - The article emphasizes Linde (LIN) as the top investment choice in the Materials sector due to its superior total return performance over the past five and ten years compared to its peers, particularly Air Products and Chemicals (APD) [10][17]. Dividend Analysis - Just over 20% of global Materials companies pay dividends, with closer to 30% in the U.S. [3] - The screening criteria for selecting dividend-paying companies include a minimum of five years of increasing dividends, a five-year dividend growth rate (CAGR) of at least 7%, and a dividend yield of at least 1% [3]. - Linde has a dividend yield of 1.3% with a five-year CAGR of 13.9%, while APD has a higher yield of 2.8% but a lower CAGR of 9.3% [12]. Profitability Metrics - Key profitability metrics analyzed include Net Income Margin (NIM) and Return on Invested Capital (ROIC), with Linde showing a NIM of 12.8% and a ROIC of 3% over the last five years [14][15]. - Linde's total return over the last ten years is 296%, significantly outperforming APD's 171% [14]. Business Model Strengths - Linde operates in the industrial gas industry, supplying a variety of gases to diverse sectors such as chemicals, energy, and healthcare [7]. - The company benefits from consistent demand, a leasing business model, long-term contracts, and an integrated supply chain, which enhances margins [7][10]. Valuation Insights - Linde's valuation metrics, including P/E and EV/EBITDA, indicate it is trading at a premium compared to historical averages, suggesting it may not be the best time to initiate a position [8][18]. - The current P/E GAAP for Linde is 33.8%, while APD's is 43.1%, indicating Linde is relatively more attractively priced [15]. Investment Recommendation - While Linde is recommended as a top pick in the Materials sector, investors are advised to consider waiting for a more favorable valuation before entering a position [17][18].