3 Cheap Chemical Companies With High Dividend Yields
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We, as human beings, need natural resources to live in this world. However, we cannot use those resources raw. Those resources need to be processed in order to be helpful in our daily lives. That is a job of the chemical industry. Chemical companies are considered extremely important, as they convert raw natural resources into more than 70,000 different products for both consumer and industrial uses. With its necessity in this modern world, I personally consider the chemical industry to be a place for long-term investments. However, investors need to dig into individual companies to find attractive opportunities for themselves.
By using the Motley Fool CAPS screen, I looked for chemical companies with several criteria: (1) return on equity greater than 20%, (2) dividend yield greater than 4% and (3) market capitalization is greater than $300 million. Here are the top 3 opportunities:
Terra Nitrogen Company (NYSE: TNH) is a nitrogen fertilizer manufacturer limited partnership. Its main products are anhydrous ammonia and urea ammonium nitrate solutions. Ammonia is used as fertilizers to increase yields of corn and wheat crops and urea ammonium nitrate is used in liquid fertilizers. Those products are mainly sold on a wholesale basis. This limited partnership is known for paying a good dividend over the years. The current dividend yield is 7.9%, with a 56% payout ratio. Over the previous twelve months, its return on equity is quite high, of 203.1%. The shares are trading at $213.05; the market capitalization is nearly $4 billion. The market is valuing Terra at 7.3x P/E, 14.8x P/B and 7.2x P/CF.
NL Industries (NYSE: NL) is a holding company with its operation of component products via its 87% ownership of CompX International (NYSEMKT: CIX) and its chemical products via its non-controlling interest of 30% in Kronos Worldwide (NYSE: KRO). As the ownership in CompX is the controlling interest, NL needs to consolidate both the income statement and balance sheet of CompX into its financial statements. As NL owns only 30% in Kronos, it accounts its ownership in Kronos by the equity method, which is often referred as “one line” consolidation. Only the net income and total stockholders’ equity reflect Kronos’ figures. NL pays investors a dividend yield of 4.9%, with the payout ratio of 25.7%. Its current return on equity is 25.7%. With the current share price of $10.27, the total market capitalization is $499.8 million. The business is valued at 5.3x P/E, 1.4x P/B and 16.2x P/CF.
Kronos Worldwide is a leading producer of titanium dioxide pigments, TiO2, for the use of coatings, plastics, paper, food, and cosmetics. The company has a diversified customer base, with 4,000 customers in around 100 countries. The majority of sales are in Europe and North America, from 17-19% for each region. Currently, Kronos is paying investors 4.4% dividend yield. Its return on equity is 35.4%. Its shares are trading at $13.79 in the stock market; the total market capitalization is $1.6 billion. At the current price, the market is valuing Kronos at 4.3x P/E, 1.5x P/B and 10.8x P/CF.
Foolish Bottom Line
All three companies are producing necessary chemical products for both consumers and industrial uses. With high returns on equity, good dividend yields and single-digit earnings valuations, those companies can be considered to be in the income portfolios of long-term investors.
hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.