The chemical industry has been a laggard so far this year, the total return year to date (04/10/2013) of the chemicals - major industry was 4.1% and of the specialty chemicals industry was 7.8%, while the appreciation of the Russell 3000 index in the same period was at 11.51%. Nevertheless, there are profitable companies that pay rich dividends among the chemical companies.
In this article, I tried to determine which of the eight best-yielding chemical 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 eight stocks are: Oil-Dri Corp. of America (NYSE:ODC), The Dow Chemical Company (NYSE:DOW), Kronos Worldwide Inc. (NYSE:KRO), Braskem S.A. (NYSE:BAK), FutureFuel Corp. (NYSE:FF), E. I. du Pont de Nemours and Company (NYSE:DD), Air Products & Chemicals Inc. (NYSE:APD) and Olin Corp. (NYSE:OLN). All the data for this article were taken from Yahoo Finance and finviz.com on April 11, before the market open.
The table and the charts below present the eight chemical companies, their last price, the market cap, the forward annual dividend rate, the forward yield, the payout ratio and the average annual dividend rate of growth for the past five years.
The charts above emphasize the consistency of raising dividend payments during the last five and ten years. The chart clearly shows that only ODC, BAK and APD have raised their payouts at a rate higher than 10% in the last five and ten 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 eight companies.
Among the eight companies, only ODC, BAK and APD have raised their payouts at a rate higher than 10%. 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.
Which of the three companies is the most attractive for dividend-seeking investors? It is not easy to determine. ODC has a high dividend yield of 5.28%, and the average annual dividend rate of growth for the past ten years was quite high at 17.31%. But the payout ratio is very high at 103%, and it is not certain that it will be able to maintain such a high dividend rate. BAK has quite a high dividend yield of 3.62%, and the average annual dividend rate of growth for the past ten years was quite high at 19.29%. But the company has suffered a loss in the last 4 quarters. APD has a bit lower dividend yield of 3.29%, and the average annual dividend rate of growth for the past ten years was quite high at 12.95%. But the average annual earnings growth estimates for the next 5 years is the highest among the eight companies at 9.63%.
In my opinion, in spite of its lower yield, Air Products & Chemicals Inc. is the best choice among the best-yielding chemical 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.