4 High Yielding Resource Stocks to Buy
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After a year of weak stock returns and strong cash flow generation, natural resource mining stocks have joined the high yielding asset class. In the old days, natural resource stocks didn’t focus on paying dividends. Now investors can find a solid selection of high yielding resource stocks that yield in excess of the 2% offered by the 10-year treasury.
The following high yielding stocks include two limited partnerships that pay 90% of profits to shareholders and provide yields in excess of 6% and include a range from the mega-cap Freeport-McMoRan Copper & Gold (NYSE: FCX) to the mid-cap coal producer Alliance Resource Partners (NASDAQ: ARLP). These stocks trade more volatile than a traditional high yielding utility or health care stock, but it most cases the stocks provide more growth opportunities than other counterparts in more conservative sectors.
Mega-cap copper explorer
While investors are concerned that Freeport made a bad investment in buying McMoRan Exploration and Plains Exploration and moving into oil exploration, the stock now produces a solid 3.5% dividend. The well-known producer of copper and gold has a market cap of $34B and annual revenue sales approaching $22B prior to the merger. The stock is set up for potential capital gains after the merger related sell-off, but the dividend should remain solid with a strong balance sheet and cash flow from the copper operations.
Freeport operates large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold, and molybdenum. The portfolio of assets include the Grasberg minerals district in Indonesia, the Morenci minerals district in North America, the Cerro Verde and El Abra in South America, and the Tenke Fungurume minerals district in the DRC.
Volatile iron-ore miner
Cliffs Natural Resources (NYSE: CLF) provides the unique opportunity to invest in a mid-cap iron-ore producer that provides a substantial 6.7% dividend yield at the current price. The stock has had a substantial sell-off since peaking around $95 in early 2011 providing for potential capital gains if the rebound in China demand continues.
The company is an international mining and natural resource play that is the largest producer of iron ore pellets in North America via the operation of six iron ore mines and two coking coal mine complexes. Cliffs also operates two iron ore mines in Western Australia and owns an interest in a coal mine in Queensland.
Underfollowed coal partnership
Alliance Resource Partners provides the unique investment in a domestic coal miner underfollowed by the market. The company has a dividend yield of 7%, yet the MLP continues to increase coal production while the market cuts back.
The company engages in the production and marketing of coal primarily to utilities and industrial users in the United States. It operates 11 underground mining complexes in the Illinois Basin, Central Appalachian, and Northern Appalachian regions.
Strong nitrogen partnership
Terra Nitrogen (NYSE: TNH) with a market cap of around $4.5B is a strong dividend play on the list with a 6.8% yield. The marketer of nitrogen fertilizer used primarily to improve the yield and quality of crops saw significant gains from 2010 to early 2012. The stock currently trades near all-time highs and will continue to benefit from the growing demand for food in emerging markets.
The principal products are anhydrous ammonia (ammonia) and urea ammonium nitrate solutions (UAN), which are manufactured at the facility in Verdigris, Oklahoma.
1-Year Dividend Yield Chart
The below chart highlights the dividend yields of these four resource stocks. The yields have mostly remained steady over the last year as strong cash flows continue to lead to high yields.
Investors now have the unique opportunity to invest in quality resource stocks with solid dividend yields above 3%. Naturally the MLPs normally trade with less volatility due to the high yields, but all of the investment options provide solid yields depending on which commodity investors perceive has having a strong future.
Mark Holder and Stone Fox Capital Advisors, LLC have a position in Freeport-McMoRan Copper & Gold. The Motley Fool recommends Alliance Resource Partners, L.P.. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!