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Go back to the basics. It's a phrase we have all heard a million times, but sometimes we forget. Keeping it simple and opting for the tried and true has a legitimate place in the investing world. With this in mind, we focused on dividend stocks in the basic materials sector and ran a screen for profitability and liquidity. Our short list today includes companies that have produced consistently strong profits while maintaining high levels of liquidity, which has translated into reliable payouts for shareholders. Take a look to see if our findings speak to you.

Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.

The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.

The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.

The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).

We first looked for basic materials dividend stocks. We then screened for businesses that have been able to maintain a sound level of profitability for shareholders (ROE [TTM]>30%)(1-year operating margin>15%). Next, we then screened for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We did not screen out any market caps.

Do you think these stocks will trade at a higher valuation? Use this list as a starting-off point for your own analysis.

1) CVR Partners, LP (UAN)

Sector:Basic Materials
Industry:Agricultural Chemicals
Market Cap:$1.80B
Beta:-

CVR Partners, LP has a Dividend Yield of 9.28%, a Payout Ratio of 78.40%, a Return on Equity of 60.52%, a Operating Profit Margin of 46.59%, a Current Ratio of 4.95, and a Quick Ratio of 4.52. The short interest was 1.93% as of 08/04/2012. CVR Partners, LP engages in the production, distribution, and marketing of nitrogen fertilizers in North America. Its nitrogen fertilizer products include ammonia and urea ammonium nitrate. The company was founded in 2007 and is based in Sugar Land, Texas.

2) Gold Resource Corp (GORO)

Sector:Basic Materials
Industry:Gold
Market Cap:$958.73M
Beta:1.12

Gold Resource Corp has a Dividend Yield of 3.97%, a Payout Ratio of 10.69%, a Return on Equity of 97.79%, a Operating Profit Margin of 51.21%, a Current Ratio of 3.91, and a Quick Ratio of 3.60. The short interest was 15.26% as of 08/04/2012. Gold Resource Corporation, an exploration stage company, engages in the exploration for and production of gold and silver in Mexico. It also explores copper, lead, and zinc ores. The company holds a 100% interest in 6 properties, including the El Aguila Project, the El Rey property, the Las Margaritas property, the Solaga property, the Alta Gracia property, and the El Chamizo property located in southern State of Oaxaca.

3) Southern Copper Corp. (SCCO)

Sector:Basic Materials
Industry:Copper
Market Cap:$27.57B
Beta:1.65

Southern Copper Corp. has a Dividend Yield of 6.24%, a Payout Ratio of 82.37%, a Return on Equity of 58.93%, a Operating Profit Margin of 54.64%, a Current Ratio of 3.56, and a Quick Ratio of 2.92. The short interest was 6.55% as of 08/04/2012. Southern Copper Corporation engages in mining, exploring, producing, smelting, and refining copper and other minerals in Peru, Mexico, and Chile. It is involved in the mining, milling, and flotation of copper ore to produce copper and molybdenum concentrates; smelting of copper concentrates to produce anode copper; and refining of anode copper to produce copper cathodes, as well as refined silver. The company operates Toquepala and Cuajone mines in the Andes Mountains located to the southeast of the city of Lima, Peru, as well as a smelter and refinery in the coastal city of Ilo, Peru. It also operates La Caridad and Buenavista copper mines, and smelting and refining plants in Mexico.

*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.

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

Source: 3 Basic Materials Dividend Stocks With Solid Earnings And Liquidity