3 Material Dividend Stocks to Consider
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Following a weak second half of the year in 2012, the industrial materials sector has shown some signs of picking up the pace recently. Even though QE tapering concerns dampened demand across the U.S. economy the last few days and the industry had a less than stellar 2012, better days for the industrial materials sector are likely in the quarters ahead. The risks to the downside persist, but the outlook is more optimistic.
Below is a closer look at three of the strongest dividend payers in the materials industry, each yielding more than the average indicated dividend yield of the S&P 500 Composite Stock Price Index, and boasting a market cap of at least $3.6 billion.
3 stocks to consider
Praxair (NYSE: PX) is the largest and only fully integrated industrial gases company in North America. Praxair pays a dividend yield of 2.4% on a payout ratio of 40% of the current-year EPS estimate. Its five-year historical annualized dividend growth rate is 12%, and the company has raised dividends for 20 consecutive years.
The company has started to focus on delivering productivity savings of at least 5% of total costs each year, helping to boost its operating cash flow, which has grown at a 12% annualized rate since 1992.
With regards to its financial performance in 2013, the company expects adjusted EPS to grow by 6% to 9%. Praxair also just entered into an industrial gas joint venture with KuibyshevAzot in Central Russia, which will increase the production of liquefied natural gas. It will also result in cost savings to the company - further increasing its production efficiency and long-term competitiveness. The company will only continue to grow as it penetrates new markets and the material sector strengthens.
Air Products & Chemicals (NYSE: APD) is a diversified gas and chemicals company and the world’s largest helium supplier. The company pays a dividend yield of 2.7%. Similar to Praxair, the company has increased dividends for 31 years in a row, and is thus one of the S&P Dividend Aristocrats. 42% of its revenue is under contracts with 15-20 year terms and low volume risk.
For fiscal year 2013, the company expects EPS growth between 0.9% and 3.7%. A continued global economy expansion trend in the second half could surprise to the upside. With rising costs offsetting an increase in sales, the business's net income decreased in its most recent quarter compared to the same period in the previous fiscal year. But billionaire Bill Ackman, of Pershing Square Capital Management, now owns about $2 billion worth of Air Products & Chemicals, or about 10% of the industrial gases and materials company, and plans to discuss operational improvement plans with the company in the near future. If effective, Air Products & Chemicals will undoubtedly push higher.
DuPont (NYSE: DD) is a global chemical and technology conglomerate that has been paying dividends since 1904 . Currently, its dividend yields 3.2%, and the company’s five-year historical annualized dividend growth rate is 1.7%. This year, it hiked its dividend by 5% and has stated that it is committed to growing its future dividends in line with earnings. Last year, DuPont struggled with weak growth, as operating EPS dropped due to the weakness in the company’s titanium dioxide and photovoltaic businesses. This year, however, the company expects “continued strong growth in agriculture and anticipated overall improvement in global industrial market demand.”
For 2013 as a whole, Dupont has experienced a gain of 33%, beating the S&P 500’s gain of nearly 20%. DuPont projects a 2%-to-7% growth in its adjusted operating EPS. The companies growth drivers are its product innovation, which annually accounts for about 30% of sales, and emerging market growth, which has averaged 22% annualized growth since 2008. DuPont has all the characteristics to be a long-term stock pick for patient investors and is an excellent options for investors specifically looking for dividend stocks.
Like most dividend-paying stocks, the three mentioned stocks aren't the most appetizing securities available, but rest assured, each of the aforementioned equities is at the top of the materials industry, offers solid safety moving forward and should continue to benefit from the expected economic gains in the materials industry.
With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!