Recent Buy

buyI’ve been a little busier this month than I planned on, which is certainly not a bad thing.

After the return to the car-free lifestyle, my available investment capital has been a bit higher than I anticipated even just a month or so ago. And since I favor cash flow over cash to a substantial degree, I’ve decided once more to turn the latter into the former.

There isn’t a plethora of value out there as it pertains to high-quality dividend growth stocks, but I also don’t think that it’s impossible to find great stocks trading at a fair or better price. As such, I picked up shares in another wonderful business whose stock seems to be priced correctly relative to its value. This specific company is a new holding, but I feel great about being a long-term business partner here. This is a stock that I recently listed as one I was watching, so I decided to finally move it from the watch list to the portfolio.

I purchased 10 shares of Praxair, Inc. (PX) on 3/27/15 for $120.06 per share.

Overview

Praxair, Inc. produces, distributes, and sells atmospheric and process gases, as well as surface coatings, worldwide. Their product offerings include oxygen, helium, and nitrogen.

Though it was founded in 1907, it didn’t become a publicly traded company until 1992.

The company operates in five segments: North America (52% of fiscal year 2014 sales), South America (16%), Europe (13%), Asia (13%), and Surface Technologies (6%).

They offer three primary distribution methods: Merchant (34% of FY 2014 sales), On-site (29%), and Packaged Gases (28%).

They are the largest industrial gases company in North and South America and one of the largest in the world.

Fundamentals

Praxair is one of those boring businesses that just routinely grows sales and profit almost like clockwork, year in and year out. Boring is indeed beautiful. It’s been said that successful investing is a lot like watching the grass grow. In that respect, you better get your lawnmower out.

Revenue was $7.656 billion in fiscal year 2005. The company grew that to $12.273 billion in FY 2014. That’s a compound annual growth rate of 5.38% over the last decade.

Meanwhile, PX increased earnings per share from $2.20 to $5.73 over this period, which is a CAGR of 11.22%. The bottom line has been boosted by improving margins and a steady reduction of the share count. This result is especially impressive considering the recent currency headwinds – Venezuela currency devaluation negatively impacted EPS by 45 cents in the fourth quarter of fiscal year 2014 alone.

S&P Capital IQ is calling for 9% compound annual growth in EPS over the next three years, which seems reasonable based on management’s EPS guidance of $6.15 to $6.50 for FY 2015.

So as a dividend growth investor, a primary consideration for me is how a company rewards its shareholders via a dividend and how it grows that payout. In this respect, the company doesn’t disappoint.

PX has a wonderful track record as far as paying and growing a dividend, basically stretching all the way back to becoming a public company.

They’ve increased their dividend for the past 22 consecutive years.

And the growth of the dividend itself is quite generous, with a 10-year dividend growth rate of 15.8%.

Now, that growth rate is higher than what the company has managed for underlying EPS over that time frame, but the payout ratio is still moderate at 49.6%.

The stock currently yields 2.38%. Not quite as high as I generally look for, but this is far above the five-year average yield of 1.9%.

Praxair’s balance sheet is leveraged, though not uncommonly so for the industry. The long-term debt/equity ratio is 1.54 and the interest coverage ratio is north of 14. These numbers compare pretty well to competitors.

However, their profitability doesn’t just compare well, it pretty much blows away everyone else. The company has posted net margin that’s averaged 14.14% over the last five years with an average return on equity of 27.26%.

Another aspect to consider about the company is that they’re diversified not only geographically, but also across end markets. No one market accounts for more than 24% of sales, and the company has an array of markets its exposed to, including: manufacturing, marketing, energy, chemicals, healthcare, food & beverage, electronics, and aerospace.

Qualitative Aspects

Companies in a variety of markets require a steady and reliable supply of industrial gases for production processes. And because of the vital importance of these gases and the low cost structure, Praxair is generally able to enter into long-term contracts with clients which provides long-term business visibility.

Their three distribution methods vary a bit, however.

The on-site method is particularly attractive. This allows Praxair to sign a long-term (10 to 20 years) contract with a large client, whereby Praxair builds a plant on or adjacent to its client’s sites and supplies product directly. These contracts aren’t only long term in nature, but also typically include minimum purchase requirements and cost escalations that allow Praxair to index certain input costs like electricity and natural gas to inflation. In addition, Praxair uses any excess supply to provide for a local market on the merchant side as well. This creates an incredible economic moat for Praxair, essentially monopolizing one local market at a time. Furthermore, it creates fantastic visibility for future revenue, assuming Praxair can maintain efficiency over the duration of its contracts.

The merchant method generally involves Praxair delivering product by tanker trucks to clients’ storage facilities. As previously mentioned, Praxair is often able to use its on-site facilities to use excess supply for merchant deliveries, which works well for the company so as to limit distribution costs. This method also typically involves long-term contracts (ranging from 5-15 years). So the vast majority of PX’s business involves long-term contracts.

Packaged gases involves clients who usually require small volumes. Praxair provides gases via cylinders under medium to high pressure. These cylinders may be delivered, or clients can pick them up from a packaging facility or retail store.

Praxair differentiates itself through its superior financial performance, with industry-leading margins and returns. This operational excellence appears to be a result of responsible use of capital and the company’s commitment to building network density. In addition, Praxair is more of a pure play on gases, as the company focuses much less on outside operations like equipment sales or electronics.

The company seems primed for growth, in my view. As of December 31, 2014, the company had a backlog of 24 large projects under construction. And these projects are fairly spread out across the company’s geographical segments, with approximately one-third of the backlog represented by North America and the other one-third represented by Asia. While the company is already dominant in North and South America with network density and long-term contracts, there is also a lot of growth potential abroad.

Lastly, the industry that Praxair operates in is largely consolidated with only a few major global players. This limits competition and creates a favorable and rational pricing environment.

Risks

Praxair’s primary risks involve execution, in my opinion. Though they are diversified across markets and geographies, the company is still largely exposed to the North and South American economies. The company’s ability to replicate its density and operations abroad will be critical to its future viability and growth. In addition, there are currently currency headwinds that are negatively affecting the company, which isn’t unlike most global companies right now. However, over the very long term, these headwinds will likely abate and possibly even reverse.

Praxair’s results can also be cyclical due to its exposure to manufacturing, though its performance over the last decade has been surprisingly secular. This appears to be a testament to its business model and the value of long-term contracts.

Valuation

PX trades hands for a P/E ratio of 20.97 right now, which is more or less in line with the broader market and the five-year average for PX. Overall, PX seems like neither an expensive nor a cheap stock right now looking at that.

I valued shares using a dividend discount model analysis with a 10% discount rate and a 7.5% long-term growth rate. This rate is on the higher end of what I usually use, but it seems fair here considering PX’s track record for EPS and dividend growth over the last decade. In addition, the company just announced a 10% dividend raise at the end of January. The DDM analysis gives me a fair value of $122.98.

So it looks like this is a stock that’s priced fairly here. But this could be a great opportunity when looking at the growth potential, backlog of projects, and currency headwinds that will abate at some point.

Conclusion

Praxair has a really attractive business model, providing a necessary product to a variety of industries across the globe. Their clients are willing to sign long-term contracts in order to ensure a constant supply of product, which allows PX to lock down a local market and piggyback other operations onto its on-site distribution. And as overseas markets continue to grow their economies, manufacturing capabilities/demands, and middle classes, Praxair should continue to grow in kind.

This stock should complement my holding in Air Products & Chemicals, Inc. (APD) nicely. Praxair concentrates much more on gases as a pure play. Meanwhile its fundamentals are mostly superior and its valuation substantially lower. APD’s stock has run up incredibly over the last few years, but the valuation seems unwarranted here with a P/E ratio north of 32. APD’s recent stock performance is less due to fundamental business improvement and more due to a P/E ratio expansion. Meanwhile, PX has largely been ignored, leaving what I see as an opportunity in its wake.

I still have a couple of free trades in my Scottrade account, so this purchase involved no commission fee.

This purchase adds $28.60 to my annual dividend income, based on the current quarterly dividend of $0.715 per share.

I’m going to include current valuation opinions from other analysts below, which I use to concentrate my reasonable valuation estimate:

Morningstar rates PX as a 3/5 star value, with a fair value estimate of $125.00.

S&P Capital IQ rates PX as a 4/5 star Buy, with a fair value calculation of $130.60.

I’ll update my Freedom Fund in early April to reflect this recent purchase.

Full Disclosure: Long PX and APD.

What do you think of PX? Like the fundamentals and business model? What about the valuation? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Note: Scottrade link is an affiliate link. As always, I only recommend what I personally use and/or find value in. 

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73 Comments

  1. I think that the fact they keep raising their dividends so consistently for so long indicates good cash flow and strong foundations to their business, so this seems like quite a good buy. Of course, adding to your positions and dividend income means you are inching ever closer to your goal of financial freedom!

  2. Nice one, Jason! I joined the ranks of PX shareholders in January at roughly the same price.

    In this somewhat lofty market, holding quality at fair prices seems good to me as well.

    Hopefully PX goes down a bit later in the year. I’d love to double my position with a slightly lower price.

    Cheers

    Jarmo

  3. This company has been on my watch list. Good entry opportunity here. I will be buying it too in month of April. And I finally initiated position in BNS on Friday.

  4. A wonderful, boring company. Just what I like to invest in, as long as it’s got good metrics like PX does of course. The during summat is killing me right now, so I’m sticking with boring UK stocks. For the time being.

    Cheers

  5. Boring, behind the scenes companies are awesome. PX would be a good complement to my own APD position but capital is light right now so I’ll most likely hold off on investing. Well try to. Definitely a company for further research because the history is there and the business is excellent.

  6. I like this choice as it is a ‘basic materials’ play. There should be long term growth in Asia as a billion people enter the middle class in India and China over the next two decades. Growth is much easier to come by in markets that are getting larger versus one where you have to steal share from a competitor.

  7. Jarmo,

    Hey, glad to be a fellow shareholder. 🙂

    I’m with you. I’d also like to see PX drop. I don’t have intentions to go too heavy there, but I wouldn’t mind doubling my position if it were to drop by 10% or more. We’ll see how it goes!

    Take care.

  8. AJ,

    Nice buy there with BNS. I enjoyed the opportunity to recently average down on that one. Gotta love almost two centuries of dividend payments. 🙂

    We’ll see how it goes with PX, but it seems like a high-quality company trading for a fair price. Nothing wrong with that.

    Best regards.

  9. JC,

    Couldn’t agree more. The more boring they are, the more likely I am to like them. 🙂

    APD has been on fire, but the valuation is just silly right now. PX is really the superior company in almost every aspect, but I’m sure glad I picked up APD when I did.

    Hope all is well with the family!

    Best regards.

  10. FV,

    Yeah, that’s basically it. They’re dominant here in the Americas, but there’s still a lot of potential for them abroad. And they’re actively building out over there, so I’m excited. We’ll see how it goes! 🙂

    Thanks for dropping by.

    Cheers.

  11. Dividend Mantra,

    Good buy their on Praxair. I think you will do well with this company over the years. The dividend growth is impressive and the company has been around for a real long time, although only public since 1992.

  12. Nice just was curious if you are saving cash to pay for taxes this year since all your stocks are in taxable. I’ve had to hold off stocks to accumulate enough cash to pay the government – I just finished paying off $25,000 and then another $5k this year. ugh.

  13. IP,

    Thanks!

    I’m definitely excited to be a business partner here. Seems like a solid business from all angles. Just a boring stock that should (hopefully) provide high-single-digit or low-double-digit dividend growth over the long haul, which translates into solid total returns. 🙂

    Appreciate you dropping by.

    Best regards.

  14. Hi,

    Definitely agree on PX. I bought some at $128, so it’s even better at $120,

    Just curious – I know it has a stingy payout – but what do you think of FDX.

    Thanks again for your terrific blog.

    Cheers,
    Stockman22

  15. DM,

    I am not too familiar with the company, but your logic is sound and it seems like you picked up a great dividend growth company. You can’t go wrong picking the market leader in such a niche industry. It also seems like the nature of the company and the projects that are taken on by PX make the switching costs high for their customers.

    I agree with your conclusion on the valuation, it is fairly valued based on your calculations. In two years, you will have forgotten the value you purchased it at anyways, so te important thing is that you just sucked it up and initiated a position.

    Nice purchase DM and way to continue to add passive income to your portfolio! Keep up the great work and the march towards financial freedom.

    Bert

  16. Very interesting buy as this company isn’t even on my radar. Reading through your logic and evaluations it sounds like this is a great company to invest in. The company will allow you to further diversify your portfolio.

  17. Another great review. Thanks for highlighting it. I really like it and now I’m torn between PX and BNS. I have some money set aside for a purchase this week and now I’m not sure which one to buy. Thanks for the quality work that you do. Its definitely the best on the web.

  18. Stockman22,

    PX has been range bound for some time now, which has possibly provided ample opportunity here. But cheaper is always better. 🙂

    As far as FDX goes, the yield is just too low for me. I’ll occasionally dip into low-yield stocks every once in a while, like I did with V. But FDX is below even that. It’s a great company with a simple business model. High fixed costs is one drawback, however. But it’s just not on my radar with that low yield.

    Best regards!

  19. Bert,

    PX is definitely a leader in this market, and those terrific fundamentals offer a lot to like. 🙂

    Thanks for the support. Just another high-quality stock to add to the collection!

    Best wishes.

  20. Seems like a nice purchase DM. I do not know the company well but you gotta love a company that consistently increase revenue, buys back stock and raises the dividend! A company with such a long history bodes well for the future.

    Good luck to you with PX, hopes it pays off well.

  21. Tawcan,

    It definitely diversifies the portfolio, though I already own shares in APD (a very similar company and a direct competitor). But the fundamentals are really solid and I love the long-term contracts here. I can’t see why they won’t continue to grow the dividend for a long time to come. Very excited. 🙂

    Thanks for stopping by!

    Cheers.

  22. Frank,

    So many stocks, so little capital. I know how you feel. My shopping list is often way too big for my wallet, so there are always compromises there. But I always try to keep perspective and remember that even being in a position to buy stocks at all is amazing. 🙂

    Thanks for the kind words. Really means a lot to me. I’m doing my best to create the best content and provide the most value I possibly can.

    Best wishes!

  23. ADD,

    Yeah, they have as long of a dividend growth record as they possibly can since they went public in 1992. So that bodes really well for future dividend raises, which should look a lot like what we’ve seen in the past.

    Appreciate the support. Excited to see what this investment looks like in a decade or so. 🙂

    Take care!

  24. Seems a great business at an acceptable valuation. It could be a lot worse. 5-10 years of growth will grow that 2 pt entry yield considerably while T can pick up the slack. 🙂

    KO in the low 40s, AXP in the low 80s and WFC in the low-mid 50s all seemed to be good values lately. Too good for me to pass up :). Each is in a turnaround or tough sector at the moment, which is really just one way of saying a good entry point for a long term investor. I look at each stock I buy as a bet and value/div growth investing isn’t a 100% winner strategy. There’s no such thing in stocks. If I come out ahead more than behind, I’m good to go in my book.

    Hoping for a bear market in the future, or even a flat market while earnings continue growing and prices do not. Until then, I’ll just have to go with the flow and take whatever’s reasonable.

  25. ravi,

    That’s the plan. I love investing across the spectrum of yield and growth, allowing each stock to cohesively work with each other within the framework of the portfolio. Working thus far. 🙂

    Yeah, I can’t think of any stock that is 100% risk-free and guaranteed to make you money. If I knew of one, I’d probably put all of my money there. That said, I think the holistic approach of sticking to high-quality companies that have lengthy track records of paying and growing dividends is fairly low in risk as far as permanent capital loss. At least, the risk is as low as I can possibly think of.

    Let’s do hope we get such a market. I need all the help I can get with this limited capital of mine!

    Thanks for stopping by and sharing.

    Take care.

  26. Mantra,

    What a great valuation! The yield looks great than it has historically – a very nice payout ratio to boot as well, smack down in the middle. With that type of growth rate, the spread of their revenue and the strong EPS growth that they have had – sounds like you picked a winner, as well as a company that is within an industry that not many look at nor have in their portfolio; and the production of gases and coatings, is always there.

    Nice job DM, great addition.

    -Lanny

  27. Lanny,

    Thanks for the support. Glad we’re on the same page. 🙂

    PX seems about fair here, which isn’t bad for the quality of the company. I’d prefer a higher yield, but I’m hoping the dividend growth will make up for the slight lack of current income. We’ll see how it goes, but I’m glad to be along for the ride!

    Thanks for dropping by. Hope all is well up in Ohio.

    Cheers.

  28. I had never even heard of Praxair, but from your analysis it looks like a great company to initiate a position in, Jason! I’m definitely adding it to my watchlist. One of the things I love about following other dividend bloggers is that you can find gems that you wouldn’t have necessarily found on your own otherwise.

    For example, I managed to get in on BBL at slightly under $40 shortly after I read your post about it in December. That’s probably my best investment to this day, what a steal! But if it hadn’t been for you, I might have never even heard of this wonderful company.

    Keep up the great work, and I will continue to shamelessly steal your awesome investment ideas! ;P

  29. Hi Jason,

    nice pick here. I invested some time two months ago in this company as I looked who is involved in 3D printer technology. When I looked at the dividend yield it seems to be not high in the first look. But watching the increase tells a complete different story. I would say, this is a high quality corp and buying shares from them is not a mistake. I like this buy and will do the same this year.

  30. I like the purchase. Praxair is on my watchlist too but for me the stock is too expensive. Like you wrote in your article the stock is priced at fair value but I think there are better choices in the market at the moment like BNS, ADM, QCOM or some cyclical stocks like CMI and CAT.

    Nevertheless I think in 10 or 20 years it will be equal that you buy Praxair at 120$ or 110$. Your return will be great just as the return with BNS, ADM and QCOM.

    Greets and nice blog 🙂

  31. Hi Jason, I’d be curious to hear if you think APD is a sell here given what I agree is a ridiculous valuation relative to PX

  32. Hi Jason,

    PX is a ver good company with a high moat, competitive advantages with only a few competitors: Linde(Germany), Air Liquide(France) and APD(USA) which have a higher per, especially APD due to Ackman hype.

    What about UNP?

    I read one of your lastest articles of 2014, you are looking to add UNP because you want to increase your exposure to railraods.

    Nowadays is a bit cheaper with a per < 20.

  33. Hi DM

    I’ve heard about this company, but never paid much attention about it. After read your post, it looks very interesting. Thank you for sharing this valuable information with your reader. You are so awesome man!!

    You are making one step at a time, but in the right direction .. keep moving forward

    Cheers,
    FJ

  34. PX is the only basic materials company I still have on my watchlist. Seems like a great company, and I much prefer it over APD. I do have my doubts on valuation; FAST Graphs shows it to be straddling the line between fairly-valued and overvalued. No big deal, since this isn’t a full position, I’m guessing. Plenty of worse options out there. Would have thought you would have beefed up your TROW holdings though, in order to get more of that special dividend!

  35. I don’t know much about the company, but that sounds like a good choice. I like finding dividend growth companies where the future of the industry is NOT in doubt. I can’t envision a future where there’s no worldwide need for specialized gases.

    I’m a shareholder in AT&T, Canon, and Philip Morris, and unfortunately I can’t say the same for them–I don’t think they’re going downhill immediately, but all three operate in segments where I could very easily believe in a future where their industries are less relevant than today. Obviously, I’m not positive–that’s why I still own them–but I wouldn’t be surprised if a time traveller from the future told me that AT&T wasn’t around or that people didn’t smoke any more. I can’t see a time traveler saying, “Industries and hospitals don’t need gases any longer,”–it just won’t happen.

    Keep on saving,
    Charles

  36. Watching BNS myself… Also looking to average down like DM. Congrats on a solid buy!

  37. Thanks for the writeup and introduction, DM. I dont know much about gases and dont really understand the business. So, your qualitative aspects section was very helpful in improving my understanding a bit more. Looks like I need to add this to my watchlist and start reading up on the industrial gases sector to get a better grip and see if it fits in my portfolio. A PE of 20 isnt bad at all in the current market conditions.

    Best wishes
    R2R

  38. Hey,

    really great blog!!

    I have a question about your dividend discount model analysis. How do you get to a fair value of 122,98$? We have a quarterly dividend of 0,715$ and so 2,86$ per year. With a discount rate of 10% and a long term growth rate of 7,5% we get a fair value of 114,40$. I get to 122,98 if I assume that the dividend is 3,0745$ which is a growth of 7,5% but is that right? At the moment the fair value should be 114,40$?! I hope I calculated right.

    Thank you for your reply 🙂

  39. Me neither. I’d raise my position to 2-3 per cent of my portfolio.

    That said, I’d not feel uneasy with a 4-5 percent allocation. It’s just a matter of price (of PX and other investment options). A fine company for the long-term investor.

    PX doesn’t a lot of headlines. It’s one of those nice companies that churns profits and grows over time. Just the way I like it 🙂

  40. ZtZ,

    Ha! I don’t mind you stealing ideas. Just make sure you do your own due diligence. Other than that, I’m happy to help and spread the word. 🙂

    Glad you were able to get in on BBL at such a great price. I imagine we’ll do quite well there over the next cycle or so. Plus, the new spin-off will pay a dividend as well. Just keeps getting better for us investors!

    Thanks for dropping by.

    Best regards.

  41. olli,

    Nice. I’m glad to finally join you as a shareholder. PX doesn’t get a lot of attention, but that’s really just how I like it. Less attention should mean less demand for the shares, making them cheaper for those of us who appreciate the business model and quality. Looking forward to collecting dividends from PX for years to come.

    Best wishes!

  42. mephisto1104,

    Great companies there. I recently purchased more BNS, so I can’t say I disagree there. ADM continues to remain on my watch list. I may pick up shares next month. We’ll see. Just not enough capital for all the stocks out there. 🙂

    I don’t know if I’m interested in CAT, however. I prefer DE in that space, so that’s where I’m invested. But CAT is a fine choice as well.

    Thanks for stopping by!

    Take care.

  43. Dofu,

    ADM appears to be incredibly expensive to me. I’m not particularly interested in selling stocks moving forward unless there are extraordinary circumstances (like ARCP), but it probably wouldn’t be a bad idea to reallocate capital elsewhere. I can’t see how they warrant this valuation at all, as they’re trading up there with the likes of companies like Visa.

    Cheers!

  44. SD,

    Exactly. Really only a few global players in this industry. That limited competition should allow a somewhat rational pricing environment. And PX has some room to wiggle there with their market-leading fundamentals.

    Good call there on UNP. I have a watch list coming out in the next week or so and UNP is on it. I’m surprised it’s dropped so much this year after blowing it out for the fourth quarter. UNP is trading a good measure above its average here, but it’s still one of the best railroads around. I’d eventually love to own a few different railroads, covering the entirety of North America. 🙂

    Best regards!

  45. FJ,

    Thanks so much! Glad you found some value in the article. 🙂

    Financial independence is exactly that – one step at a time. Slow and steady eventually wins the race.

    Appreciate the support!

    Best wishes.

  46. DD,

    I don’t use FAST, so I can’t really comment there. But from all I can see, it’s on the lower side of fair value. It’s subjective, though. 🙂

    I really thought about adding more TROW, but that stock (and others like it) will be particularly sensitive to any changes in the stock market. So I’m not sure how heavy I want to go there right now. Any excess volatility in the market could provide an even better opportunity. And I think I’d like to spread the wealth out across a few different high-quality asset managers anyhow.

    Cheers!

  47. Charles,

    Yeah, great point there. I agree with what you’re saying. An investor always has to be cautious in regards to obsolescence. Though, I’ve never seen any kind of major company become obsolescent overnight. There’s typically a long road to the bottom there, so it’s something you should see well before the bottom falls out. Tobacco and oil are a couple of industries that I’m concerned about, but I say that with the thought of multiple decades. I can definitely see a time where we use substantially less or very little fossil fuels, but I think that time frame is still decades in the future. But infrastructure is slowly changing for that, so it’s something to be mindful of.

    AT&T might be a little different because it’s technically a technology company nowadays. So that might change faster than you think. But that’s why you diversify and it’s also why that big dividend is so attractive (from a risk reduction standpoint). 🙂

    Best regards.

  48. TM,

    Thanks! We’ll see how it goes.

    Best of luck with BNS over there. Gotta love almost two centuries of dividend history. Just doesn’t get better than that. 🙂

    Cheers.

  49. R2R,

    Glad I was able to help! 🙂

    It’s really interesting how the different methods work together to allow this cohesive nature. And you have to love contracts that span a decade or more.

    We’ll see how it goes. Thanks for stopping by!

    Best wishes.

  50. Tim,

    Hmm, that’s strange. I’m not sure if some calculators are actually putting a 12-month target price as the output, rather than fair value as of today?

    I personally use the spreadsheet that came with The Dividend Toolkit. But this calculator gives me the same fair value:

    http://www.calculatorpro.com/calculator/dividend-discount-model-calculator/

    Not sure why there’d be discrepancy, other than the possibility that your valuation is fair value looking at today or backward, and the other is fair value looking out over the next twelve months.

    Hope that helps!

    Cheers.

  51. This is an industry I am just starting to looking at (prior to your post), and I appreciate your review of PX. I live in Vancouver, Washington and drive by a Linde (LNEGY) plant every day. They also produce industrial and specialty gasses used in hospitals and other industries. I believe they are based in Germany and have around a 2% yield. Do you look at competitors such as this company?

  52. David,

    It’s always nice when you can see operations firsthand, isn’t it? 🙂

    That’s a good question there about Linde. I wasn’t interested in Linde for a number of reasons: lower yield, annual payout, lack of lengthy dividend growth history, added tax complications with the dividend withholding, and overall inferior fundamentals. Just didn’t make sense for me.

    Thanks for dropping by!

    Take care.

  53. Love this pick for the Freedom Fund, Jason! This amazing company has been on my watchlist for a while now and I probably should have pulled the trigger already, especially because I don’t really have a ‘materials’ company yet. It’s suppose to be a cyclical industry but as you pointed out, this company seems to defy that label with an almost straight shot upwards on all the charts. I’m very much looking forward to joining you here eventually. Excellent analysis and I appreciate you sharing it with us!

  54. Ryan,

    Thanks for the support, bud. You’re doing great over there! 🙂

    Yeah, it’s really interesting how secular their growth has been for a company that could be considered cyclical. You definitely don’t see the big peaks and valleys here like you might expect. All in all, really solid stuff. Looking forward to being a business partner for many years to come.

    Appreciate you stopping by.

    Best wishes!

  55. Nice pick up with PX. I added that one not long ago to my watch list. In general I like the space with PX, ARG and APD. I have owned APD for a long time and am considering expanding into that sector as well. Thanks for sharing. Nice to see a buy outside energy or financial for a change.

  56. Hey Mr. D. Mantra,

    I’ve only been following you for about 3 weeks now (a friend pointed me in your direction) but I love what you’re doing. I’ve wanted to do something like this since I was 18 (I’m now 32) but people kept putting me off, advising against it “the stock market is full of crooks”, “you don’t know what you’re doing, leave it to the professionals” that kind of thing. Believe it or not, the Irish can be very pessimistic. Those same people don’t seem to change their mind when I talk about you nor do they want to look at the evidence (your blog)….. so I am daring this journey alone.
    I have a few questions I’m hoping you can help me with – please forgive me if they’re trivial or very random.

    I’ve been looking into different online brokers, are there any that offer 10+ free trades to help you get started? Or special offers? I’m looking for charges around the $4.95 – $7 range after that.

    How often do companies actually pay out there dividends, is it every month or once every quarter?

    As soon as the dividends have been paid into your Broker account / Bank account (assuming I don’t do a DRIP) is the tax on gains paid then or is that something I have to take care of at the end of the year when I do my taxes?

    I have $10k to start with and I am going to aim for $800 a month after that, do you have any recommendations where to put that first $10k? Or how many companies I should divide it by? I was considering GE, KO, BNS as some candidates.

    Last question, what to you think / know about Robinhood (Free Stock Trading)?

    If you can answer any or all of those questions I would be so grateful.

    I have to say, you’re very inspiring and you are the glimmer of light I have been hoping for. I needed to read your blogs, see your evidence & see what you have been through – where you started and where you are now to give myself that much needed kick in the arse and forget the nay-sayers.

    I look forward to hearing from you,

    Mr. Regan

  57. DivHut,

    I agree. There are a few really fantastic companies in this space. ARG is another one that I like, though it’s more specialized than PX.

    Thanks for dropping by!

    Cheers.

  58. Regan,

    Thanks for following along. I hope you continue to find value in the blog and stay in touch. 🙂

    As far as your questions go, I’ll do my best. The sheer number of questions you have is generally something better to contact me privately about, but I’ll run through the answers:

    1. I use Scottrade. The commission fee is $7 per trade, which I find reasonable considering the level of service and offerings. And I like the fact that I can stop by a branch if I want. If you want to contact me, I can give you a referral code which will give us both three free trades upon opening and funding a new account. Other than that, there are quite a few choices out there. If you’re looking for something cheaper, TradeKing charges $4.95 per trade and gets generally favorably reviews. I’m looking into them for my second brokerage account, among others. But I’d do research here and figure out what works for you. I feel comfortable recommending Scottrade, however, only because I’ve been using them for five years now. Keep in mind that cheaper isn’t necessarily better, though. And if $5 or $7 or whatever is going to make or break you, you’re doing it wrong.

    Edit to add: Scottrade’s FRIP service is also pretty attractive and revolutionary.

    2. Depends on the company. Most US-based companies pay quarterly. But some, like Realty Income Corp. (O) pay monthly. Those are rare, though. The best thing to do is to look up the company’s investor relations site or go to Morningstar.com and find the payout schedule.

    3. You’ll have to take care of taxes – if you owe any – at tax time. Taxes aren’t withheld by your brokerage or the company paying you. Although, it’s unlikely you’ll be looking at much of anything in terms of taxes until you’re collecting a few grand per year, which takes time. My withholding at my old day job took care of any dividend tax I owed at the end of the year since for years I wasn’t collecting much and thus didn’t owe much. Instead of getting a small refund, however, I’d break even or slightly worse. But qualified dividends are taxed quite favorably, which I’ve discussed before. Keep in mind, though, that I’m not a tax expert and taxes are incredibly unique to each person.

    4. I don’t make stock recommendations as I’m not a financial advisor. It’s impossible for me to advise anyone on stocks as what works for me may or may not work for you. However, I put my money where my mouth is and my recent stock purchases will show that – those recent purchases might be a good place to start looking.

    5. I haven’t used Robinhood, so I have no firsthand experience. But I’m not personally interested in the platform as it stands now, nor am I interested in a new company being the guardian of thousands (or hundreds of thousands) of dollars of my money. And if I’m not comfortable with $100k there I’m not comfortable with $50k or $20k. It could be a great platform down the road, but I’d personally give it more time to grow, offer a desktop version, and make sure that it’s a viable business.

    I hope that helps. If you have any other questions or need some more clarification drop me an email. Best of luck starting down your own journey. You’re in great shape there with $10k to start. That’s about double what I started with, which is wonderful. That’ll jump start things right away. Just keep in mind that your savings rate will most likely determine your success and time frame, not necessarily your investment results.

    Good luck! 🙂

    Take care.

  59. DM,

    Awesome move. I like PX and all of their competitors. They are in an excellent industry that is reliable, boring, and poised for growth. Go to any hospital, factory, or lab – they all use tons of compressed gas and other chemicals. PX and the like should be right there to scoop up that work. In my area I have seen their trucks and tanks (along with APD and Airgas) all over the place at plants and hospitals – they are always making business.

    Unlike you I added a car (well traded in), my old one was needing a new engine. Life happens I guess, have to just plan to live smart otherwise.

    Enjoy PX and the growth.

    – Gremlin

  60. FabSavings,

    Glad I could provide a fresh idea! 🙂

    PX offers a lot to like for sure. Great fundamentals, lengthy dividend growth record, and fair valuation. Looking forward to seeing where the company’s at in about 10 years.

    Cheers!

  61. Gremlin,

    Thanks for sharing that.

    I agree that this is an incredibly boring industry, but one that makes a lot of money over a long period of time. And I’m certainly excited about getting my hands on a piece of that. 🙂

    Sorry to hear about the engine troubles over there. That’s never fun. I used to hate making those phone calls back when I worked at the dealership – letting people know their car wasn’t worth fixing. Hopefully, the new car lasts for a good long while!

    Best regards.

  62. You’re assuming they’ll grow dividends 7.5% forever and ever? I think you’ll be disappointed…

  63. Jesse,

    Well, I don’t need to worry about forever… I’m unfortunately not immortal. But I think it’s reasonable to conclude they can grow their dividend at that rate for the next few decades, which is substantially lower than the last couple decades (assuming future growth is slower). Valuation models take growth rates out to infinity, but I’m more concerned with my lifespan. 🙂

    Cheers!

  64. DM,

    Great buy as usual. I have been a share holder in PX for the last 6 years and it did not disappoint.

    Hoping you will hold it as long as I.

    I averaged down again on my position in PM. It is just too good of an opportunity to pass by.

    My cost basis is now in the low 79$. Hoping to add more if it falls below the 73$ mark.

    Have a great day…

  65. Frank,

    Glad to be a fellow shareholder with a long-term holder like yourself. I definitely hope to own PX for decades to come. 🙂

    Great buy there on PM as well. It’s almost silly how cheap it’s become. I personally don’t want/need any more, but I’d be buying hand over fist if I were in a different position.

    Thanks for dropping by!

    Best regards.

  66. Sometimes it really sucks to not have liquidity available! 😉 But hey, gotta stick to greater goals for the year! Nice one Jason! 😉

    Cheers!

    Mike

  67. Mike,

    I hear you there on liquidity. I never have a ton of cash around because I’m putting so much to work on a regular basis, but, then again, I prefer cash flow to cash. They both provide an ability to spend, but one regenerates itself and one doesn’t. 🙂

    Thanks for dropping by. Hope all is well!

    Best wishes.

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