Which Of The 7 Top Basic Materials Companies Is Most Attractive To Dividend Investors?

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 |  Includes: BHP, DD, DOW, FCX, NEM, NUE, TCK
by: Arie Goren

The basic materials sector has been the worst performer so far in 2013, the total return, year to date (03/06/2013) was only 0.4%, while the appreciation of the Russell 3000 index in the same period was 8.43%. Nevertheless, there are profitable companies that pay rich dividends among the top basic materials companies.

Stock Sectors' Total Returns, Year to Date, are shown in the chart below:

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Source: finviz.com

In this article, I tried to determine which of the seven top basic materials companies, traded in the U.S., is the most attractive for dividend-seeking investors.

I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most important factors for dividend-seeking investors. Of course, it is also essential that a company has enough earnings growth prospects to maintain increasing dividend payments.

The seven stocks are: BHP Billiton Limited (NYSE:BHP), E. I. du Pont de Nemours and Company (NYSE:DD), The Dow Chemical Company (NYSE:DOW), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Newmont Mining Corp. (NYSE:NEM), Teck Resources Limited (NYSE:TCK) and Nucor Corporation (NYSE:NUE). All the data for this article were taken from Yahoo Finance and finviz.com on March 07, before the market open.

The table below presents the seven basic materials companies, their last price, the market cap and their industries.

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The table and the charts below present the seven basic materials companies, their last price, the forward annual dividend rate, the forward yield, the payout ratio and the average annual dividend rate of growth for the past five and 10 years.

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The charts above emphasize the consistency of raising dividend payments during the last five and 10 years. The chart clearly shows that the BHP, FCX and NEM have raised their payouts at a higher rate than the other top basic materials companies in the last five and 10 years.

The charts below present the trailing P/E, forward P/E, the average annual earnings growth estimates for the next 5 years, the price-to-sales ratio and the price to book value of the seven companies.

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Discussion

Among the seven companies, the BHP, FCX and NEM have raised their payouts at a higher rate. Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. Companies that regularly increase dividends are generally more stable. Increasing dividends is the assurance that dividend income retains its purchasing power over time.

The table and the charts below show the most important parameters, for dividend-seeking investors, for these three companies.

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BHP Dividend Chart

BHP Dividend data by YCharts

BHP Dividend Yield Chart

BHP Dividend Yield data by YCharts

FCX Dividend Chart

FCX Dividend data by YCharts

FCX Dividend Yield Chart

FCX Dividend Yield data by YCharts

NEM Dividend Chart

NEM Dividend data by YCharts

NEM Dividend Yield Chart

NEM Dividend Yield data by YCharts

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Chart: finviz.com

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Chart: finviz.com

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Chart: finviz.com

Which of the three companies is the most attractive for dividend-seeking investors? It is not easy to determine. FCX has a high dividend yield of 3.81%, and the average annual dividend rate of growth for the past 10 years was very high at 21.99%. But the average annual earnings growth estimates for the next 5 years is only 3%, and it is not certain that it will be able to maintain such a high dividend rate. In addition, as it is shown in the chart, the dividend payment was inconsistent during the last 10 years. NEM has even a higher dividend yield of 4.25%, and the average annual dividend rate of growth for the past 10 years was also very high at 27.82%. But the average annual earnings growth estimates for the next 5 years is negative at -1.80%, and it is not certain that it will be able to maintain such a high dividend rate. FCX has a lower dividend yield of 3.09%, and the average annual dividend rate of growth for the past 10 years was very high at 23.82%. But the average annual earnings growth estimates for the next 5 years is quite high at 6.60%, and it is most probable that it will be able to maintain and raise its dividend payment.

Conclusion

In my opinion, in spite of its lower yield, BHP Billiton is the best choice among the top basic materials companies I reviewed for dividend-seeking investors, due to its solid yield and its good earnings and dividend growth prospects.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.