9 Dividend Paying Basic Materials Stocks With Low P/E Ratios

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Includes: APL, ARLP, BPT, COP, CVX, DD, RNO, SCCO, TNH
by: Insider Monkey

During the past few years, central banks all around the world have been using various expansionary monetary policies to stimulate their economies. For example, the Fed has been committed to the ultra-low interest rates for another three years. However, the economy is actually much more resilient than expected. The market is up about 17% since the end of the third quarter. We believe that the economy will continue to grow while the Fed will be late in response, leading to inflation. Therefore, we have been recommending investors to purchase high dividend stocks as they can provide investors with some inflation protection.

Below we compiled a list of nine dividend paying basic material stocks with low P/E ratios. All companies have at least $2 billion market cap, dividend yield higher than 3%, and P/E ratio lower than 15. The market data is sourced from Finviz.

Ticker

Company

P/E

Dividend Yield

APL

Atlas Pipeline Partners LP

7.35

5.78%

ARLP

Alliance Resource Partners LP

9.76

4.89%

BPT

BP Prudhoe Bay Royalty Trust

12.23

8.22%

COP

ConocoPhillips

8.9

3.80%

CVX

Chevron Corporation

7.9

3.04%

DD

E. I. du Pont de Nemours and Company

13.84

3.22%

RNO

Rhino Resource Partners LP

14.27

8.85%

SCCO

Southern Copper Corp.

13.33

6.83%

TNH

Terra Nitrogen Company, L.P.

13.49

7.32%

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Atlas Pipeline Partners LP has a P/E ratio lower than 10 and a relatively high dividend yield. The $2 billion market cap stock has a P/E ratio of 7.35 and a dividend yield of 5.78%. Atlas Pipeline is a provider of natural gas gathering, processing and treating services. On January 26, the company announced that the partnership has declared a quarterly cash distribution of $0.55 per common limited partner unit for the fourth quarter of 2011. At the end of September, Leon Cooperman's Omega Advisors had $171 million invested in APL. The stock was up 27.17% since then, beating the market by about 10 percentage points.

Alliance Resource Partners LP also has a decent dividend yield and an attractive P/E ratio. It has a market cap of $2.9B, a P/E ratio of 9.76, and a dividend yield of 4.89%. Alliance Resource is a producer and marketer of coal mainly to utilities and industrial users in the United States. It reported third quarter net income of $104 million in 2011, compared with $73 million for the same quarter a year earlier. Chuck Royce's Royce & Associates reported to own $18 million worth of ARLP shares at the end of September. Jim Simons' Renaissance Technologies also had $4 million invested in this stock. ARLP returned 20.77% since the end of the third quarter, outperforming the market by more than three percentage points.

One mega-cap dividend basic material stock with a low P/E ratio is Chevron Corporation . It has a market cap of $212B, a dividend yield of 3.04% and a P/E ratio of 7.9. Chevron has been increasing its dividend payouts for 24 consecutive years. The company recently increased its quarterly dividend from $0.78 to $0.81 per share, which was paid on December 12, 2011. CVX is a popular stock among hedge funds. There were 38 hedge funds with CVX positions at the end of the third quarter. For example, Bill Miller's Legg Mason Capital Management reported to own $125 million worth of CVX shares at the end of September. Since then, CVX returned 16.04%, versus 17.29% for SPY in the same period.

Other large-cap basic material stocks with high dividend yields and low P/E ratios include ConocoPhillips , E. I. du Pont de Nemours and Company and Southern Copper Corp. According to our past studies, dividend stocks on average outperformed the overall market by 1.36% per year from 1927 to 2009. And stocks with low P/E ratios are relatively more likely to be undervalued compared with stocks with higher P/E ratios, which means that low P/E stocks have greater potential to grow in the future. We encourage investors to play more defensively by investing in the high dividend stocks with low P/E ratios.

Disclosure: I am long COP.