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These basic materials (metals, energy but excluding utilities, chemicals) stocks are well positioned to take advantage of rising commodity prices while offering an attractive dividend yield. Some names on this list may be more familiar than others. One goal was to select companies that represent a broad range of industries.

Analysis

The analysis was conducted by screening through stocks within in the sector and limiting the selections to stocks with a greater than 2% dividend yield. I also looked at the full universe of basic materials stocks to compile some general statistics about the sector. The initial screen showed that there were 268 stocks in the basic materials category and 144 offered a dividend yield at .1% or higher with the maximum yield at 12.9% for Great Northern Iron Ore Properties (NYSE:GNI).

This analysis is limited by the stock screening tool that I used and one clear issue is that the dividends are not completely current. Top stocks were manually checked for current dividends as posted by Yahoo Finance. The second challenge was that the screening tool dropped companies from the Sector screen that were later picked up in an Industry screen.

Table 1: Top Dividend Yields in Basic Materials Sector

Ticker Company Name Dividend Yield Market Cap ($ Millions) Return On Assets (%)
GNI Great Northern Iron Ore Properties 12.9% 177 54.9
CLMT Calumet Specialty Products Partners 7.9% 801 2.9
MMLP Martin Midstream Partners 7.6% 735 2.5
BBEP BreitBurn Energy 7.4% 1,157 2.9
EVEP EV Energy Partners LP 7.0% 1,329 5.1
FGP Ferrellgas Partners LP 7.0% 2,036 6.7
CPNO Copano Energy LLC 6.8% 2,211 2.2
EXLP Exterran Partners 6.8% 899 2.3
SID Companhia Siderurgica Nacional 6.8% 24,090 9.2
RGNC Regency Energy Partners LP 6.7% 3,613 0.6
ETP Energy Transfer Partners 6.7% 10,189 6.1
PVR Penn Virginia Resource Partners 6.6% 1,402 5.2
EEP Enbridge Energy Partners LP 6.5% 8,007 1.5
TLP Transmontaigne Partners L.P. 6.4% 558 5.1
NS NuStar Energy LP 6.3% 4,353 3.5
BWP Boardwalk Pipeline Partners, LP 6.3% 6,313 3.8
KMP Kinder Morgan Energy Partners LP 6.3% 22,487 4.8
MWE MarkWest Energy Partners LP 6.1% 3,009 2.9
HEP Holly Energy Partners L.P. 6.1% 1,199 8.8
NRP Natural Resource Partners LP 6.1% 3,771 7.6
PAA Plains All American Pipeline LP 6.0% 8,657 3.7

Data sourced from Yahoo!Finance on February 12, 2011.

The first and most obvious observation is that with a few exceptions these companies are pipeline companies that are master limited partnerships (MLP). There exposure to commodity values is not direct since they often do not own the resources themselves.

The second screen was one to select companies with lower valuations and ensuring reasonable metrics across dimensions like Price to Book, Return on Equity, and Return on Assets. Companies with enterprise values below $500 million were also screened out. Most companies listed in Table 1 qualify on these dimensions. To create a diverse list of companies the MLPs were screened out with a few added back. I also sought to identify companies with strong valuation metrics.

Table 2: Top 10 Dividend Stocks - Diverse Basic Materials Sectors

Ticker Company Name Sector Dividend Yield
CLMT Calumet Specialty Products Partners Oil & Gas Refining & Marketing 7.9%
SID Companhia Siderurgica Nacional Steel & Iron 6.8%
PVR Penn Virginia Resource Partners Industrial Metals & Minerals 6.6%
TNH Terra Nitrogen Company, L.P. Agricultural Chemicals 5.0%
OLN Olin Corp. Chemicals 4.3%
AHGP Alliance Holdings GP LP Nonmetallic Mineral Mining 4.0%
NL NL Industries Synthetics 3.8%
DD EI DuPont de Nemours & Co. Chemicals 3.1%
COP Conoco Phillips Major Integrated Oil & Gas 3.1%
NUE Nucor Corporation Steel & Iron 3.0%

Data sourced from Yahoo!Finance on February 12, 2011.

Table 3 shows additional financial metrics that suggest these 10 companies also possess reasonable valuations with price appreciation potential.

Table 3: Top 10 Select Financial Metrics

Ticker Enterprise Value ($ Millions) Return On Equity Return On Assets EV/ OCF
CLMT 1,235 3.7% 2.9% 7.4x
SID 29,625 41.0% 9.2% 13.8x
PVR 2,155 15.8% 5.2% 16.9x
TNH 1,956 91.2% 43.1% 5.1x
OLN 1,514 10.0% 3.5% 15.0x
AHGP 3,463 53.7% 16.7% 14.3x
NL 716 6.9% 0.4% 2.0x
DD 51,032 36.8% 6.8% 14.3x
COP 123,863 17.2% 0.0% 5.1x
NUE 16,941 1.8% 2.1% 8.8x

Data sourced from Yahoo!Finance on February 12, 2011.

Conclusion

These stocks represent a potentially attractive way to play rising commodity prices while providing some current income. Other observations include that the stocks screened without dividends comprising 124 companies had a combined market capitalization of about $299 billion and a combined enterprise value of $358 billion. The 144 companies with dividends had a combined market capitalization of $2,249 billion and a combined enterprise value of $2,550 billion. It should be noted that the subsequent screen of sectors yielded over 400 companies, including a few significant companies that picked up in the initial screen.

I provided a more detailed view of some gold mining stocks in a previous article. As always, it is important to do additional analysis prior to making an investment decision.

Disclaimer: This article is for informational and educational purposes only and shall not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security.

Source: Top 10 Basic Materials Dividend Stocks