To give credit where it’s due, the Airgas (ARG) business model is probably among the best for investors who love dividends. The company generates lots of recurring revenue by refilling tanks for all sorts of medical and industrial uses. Airgas has also managed to crank up its dividend for several years on end, and will likely be able to keep doing so.
So what’s the downside? The current yield is a mere 2.0%, and the same business model that it so reliable also doesn’t produce a great deal of growth. Last year’s top line was only 4.4% better than 2011’s, and the bottom line was only 8% better (and that was with a ton of cost cuts). The dividend payout jumped from 31% of income to 37% of income during that time, however, which is approaching the point where there’s little cash left to give out without sacrificing growth.
Even modest improvement on a yield of 2.0% leaves the payout short of 10-year treasury bonds.