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Last week was a glorious week for bullish investors. Industrial stocks advanced the most (6.2%), whereas basic material stocks returned only 2.7%. While basic materials were the laggards of this week, they returned almost 10% in a year. Basic material companies that work on raw materials are more durable to volatility in economic conditions. Many of them pay pretty good dividends as well. I have looked for the top six basic material stocks that offer excellent dividends, and are priced with low P/E ratios. I have investigated these stocks from a fundamental perspective, adding my O-Metrix Grading System where possible. The maximum P/E ratio is 15, and minimum yield is 3%. Analysts estimate at least 5% EPS growth for the next 5 years for these companies. Here is a fundamental analysis of the top six basic materials offering excellent dividends (Data obtained from Finviz/Morningstar, and is current as of Sep 16):

ConocoPhillips (COP): ConocoPhillips's local partner in China will be more active in Remediation Plan. ConocoPhillips has a market cap of $91.1 billion. It was trading at a P/E ratio of 8.4, and a forward P/E ratio of 7.4, as of the Sep 16 close. Analysts expect the company to have an 8.0% annualized EPS growth in the next five years. With a profit margin of 5.1%, shareholders enjoyed a 3.95% dividend last year.

Earnings increased 28.9% this year, and O-Metrix score is 7.56. The stock is currently trading 17.48% lower than its 52-week high. Target price implies a 23.8% upside potential, while it returned 19.4% in a year. ROA and ROE are 7.82% and 18.50%, respectively. Operating margin is 10.2%, and gross margin is 25. 5%. Debt-to equity ratio is 0.3, far better than the industry average of 0.6. Moreover, it has a five-star rating from Morningstar. Assets are steadily increasing. Yields are great. Recent dividend payments are as follows:

07/21/11

$0.66

05/19/11

$0.66

02/17/11

$0.66

10/27/10

$0.55


Chevron Corp. (CVX): Chevron will invest a minimum $3 billion in Indonesia’s oil sector this year. Chevron has a huge market cap of $197.3 billion, a P/E ratio of 8.7, and a forward P/E ratio of 7.4, as of Sep 16. Estimated annual EPS growth for the next 5 years is 5.0%. With a profit margin of 9.9%, it paid a 3.14% dividend last year. The company had an EPS growth of 80.93% this year, and 42.73% this quarter. O-Metrix score is 5.05, while the stock is trading 9.72% lower than its 52-week high. Sales rose by 30.08% this quarter, and Chevron returned 24.6% in a year. Target price is $117.20, indicating a 19.1% increase potential. Institutions own 64.53% of the shares. Debt-to equity ratio is 0.1, way better than the industry average of 0.6. The company returned 20.9% in a year. Moreover, it has a four-star rating from Morningstar. Operating margin (17.2%), profit margin, and ROE (21.4%) are moderate green flags. Here is the recent dividend history of Chevron:

08/17/11 $0.78
05/17/11 $0.78
02/14/11 $0.72
11/16/10 $0.72

E. I. du Pont de Nemours and Company (DD): DuPont will receive $919.9 million, which will be paid by a South Korean company over the theft of trade secrets about the manufacture of Kevlar, an anti-ballistic fiber used in security gear. The Delaware-based DuPont shows a trailing P/E ratio of 12.8, and a forward P/E ratio of 10.1, as of Sep 16’s close. Analysts estimate a 9.3% annual EPS growth for the next five years. It paid a 3.53% dividend, while the profit margin was 9.6% in 2010.

The stock returned 7.6% in the last twelve months, and O-Metrix score is 5.60. Earnings increased by 70.69% this year, and institutions own 64.49% of the shares. While ROE is 33.3%, ROA is 7.94%. Gross margin and operating margin are 26.84% and 10.9%, respectively. Target price is $60.71, indicating an about 31.4% increase potential. Profit margin, ROE, and debt-to equity ratio (1.1) are trustworthy green flags. Assets are increasing since 2006, while debts are unstable. DuPont is a stable profit-maker in the long run. Recent dividend payments per share are:

08/11/11

$0.41

05/11/11

$0.41

02/11/11

$0.41

11/10/10

$0.41

The Dow Chemical Co. (DOW): Dow Chemical will yield a $0.25 dividend on Oct, 28. It was trading at a P/E ratio is 11.1, and a forward P/E ratio of 8.0, as of the Sep 16 close. Analysts expect the company to have an annualized EPS growth of 8.0% in the next 5 years. Profit margin is 4.4%, and it offered a 3.60% dividend last year.

Earnings increased by 703.18% this year, and 68.53% this quarter. Institutions own 71.25% of the shares. O-Metrix score is 6.07, whereas it returned 4.6% in the last twelve months. The debt-to assets ratio is decreasing for the last three quarters. The stock is trading 34.87% lower than its 52-week high, while target price indicates a 40.3% upside movement potential. Average analyst recommendation for DOW is 2.50 (1=Buy, 5=Sell). Debt-to equity ratio is 0.9, way better than the industry average of 5.0. P/B (1.6) and P/S (0.5) are moderate green flags. Moreover, it has a four-star rating from Morningstar. Recent dividend history is as follows:

06/28/11

$0.25

03/29/11

$0.15

12/29/10

$0.15

09/28/10

$0.15

Southern Copper (SCCO): Southern Copper has cut its production forecast by approximately 8% on lower ore grades at 3 of its mines. As of Sep 16, Southern Copper shows a trailing P/E ratio of 13.5, and a forward P/E ratio of 9.2. Analysts estimate a 16.0% annualized EPS growth in the next five years. With a profit margin of 32.4%, and a dividend yield of 7.85%, Southern Copper is an outstanding stock for dividend lovers.

Southern Copper had a 67.35% EPS growth this year, and 110.24% this quarter. It returned -4.3% in a year, whereas O-Metrix score is 10.50. Sales rose by 53.55% this quarter. Debts are decreasing for the last five quarters, and dividends are growing consistently. ROA and ROE are 26.16% and 50.95%, respectively. Target price indicates an about 29.5% increase potential, while the stock is currently trading 34.55% lower than its 52-week high. Operating margin is 52.2%, and PEG value is 0.6. Southern Copper will beat the market in the long run. Recent dividend history of the stock per share is as follows:

08/15/11

$0.62

05/02/11

$0.56

02/11/11

$0.58

11/12/10

$0.43

Spectra Energy Corp. (SE): Spectra Energy is named to the Dow Jones Sustainability World Index two in a row. It has a P/E ratio of 14.7, and a forward P/E ratio of 14.0, as of Sep 16. Estimated annual EPS growth for the next 5 years is 6.0%. Profit margin (22.3%) crushes the industry average of 4.1%, while it paid a 4.01% dividend last year. O-Metrix score of Spectra is 3.48, whereas it returned 17.7% in a year. The company had an EPS growth of 22.39% this year, and 57.56% this quarter. The stock is currently trading 10.08% lower than its 52-week high, and institutions own 65.63% of the shares. Target price is $29.78, indicating a 15.5% increase potential. Gross margin and operating margin are 78.6% and 34.6%, respectively. P/E ratio, profit margin, ROE (14.8%), and debt-to equity ratio (1.3) are trustworthy green flags. Recent dividend payments per share are:

08/10/11 $0.26
05/11/11 $0.26
02/09/11 $0.26
11/09/10 $0.25



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Top 6 Basic Material Stocks With Substantial Dividends