In the most literal sense of the phrase, Airgas (ARG) pulls profits out of thin air. The firm is the country's largest industrial gas supplier, providing customers like industrial manufacturers and hospitals with gases such as oxygen, nitrous oxide, and acetylene, in addition to complementary hard goods such as welders and eye protection.
Airgas enjoys a lucrative business with relatively low costs. Gasses are high margin consumables that are recurring in nature -- customers need to keep coming back to Airgas if they want to keep their operations running smoothly. And some of the firm's biggest returns come from renting out gas cylinders, equipment that customers rarely want to own and maintain themselves.The gas supply business is fragmented, with a couple national names and many small operations. That means that large clients who want to simplify suppliers are much more apt to turn to a national operator like Airgas. And since gas is relatively low cost (compared to customers' other overhead items), the firm also has considerable pricing power. While a growth-by-acquisition strategy means that Airgas' balance sheet is no stranger to debt, the firm is more than capable of hiking its 40-cent dividend in the next quarter.
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