3 High-Yield Dividend Stocks From the Basic Materials Sector
These 'essential' materials names all have yields around 5% or higher.
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Investors are facing a difficult backdrop for stocks this year due to the impact of inflation, the effect of high interest rates, and the increasing risk of a recession. During this period, some materials stocks are interesting thanks to the essential nature of their business.
Investors can also find high dividend stocks from the basic materials sector. Here, we will discuss the prospects of three top materials stocks, which all have dividend yields around 5% or higher.
A Dividend En-Dow-ment
Dow Inc. DOW is a standalone company that was spun off from its former parent, DowDuPont. That company has broken into three publicly traded, standalone parts, with the former Materials Science business becoming the new Dow Inc. Dow began trading on its own in 2019, and should produce about $44 billion in revenue this year.
Dow posted first-quarter numbers on April 25, and results were fairly strong. Adjusted earnings per share came to 56 cents, 11 cents ahead of estimates. Net sales were $10.8 billion, down 9% year over year. Sales were up 1% sequentially, which was driven by strength in Performance Materials & Coatings, as well as Industrial Intermediates & Infrastructure.
Volume was up 1% versus the year-ago period, as all geographic regions performed well except for the EMEAI area. Excluding the company’s energy-related businesses, volumes would have risen 5%. Local price fell 10% year over year, although it was flat sequentially.
Dow returns significant cash to shareholders. Last quarter, Dow returned $693 million in cash to shareholders during the quarter, including $493 million in dividends, and $200 million in share repurchases. We see EPS of $3.00 for this year, but continue to expect 2025 and beyond to see materially higher earnings.
The company’s product portfolio is not only its competitive advantage, but also should perform well enough during downturns to keep the company profitable. Dow’s focused efforts on high-growth areas such as consumer care, packaging, and infrastructure, as well as its very long operating history as a component of its former company, are appealing for investors.
DOW stock currently yields 4.9%.
Dividend Aristocracy
Amcor plc AMCR is one of the world's most prominent designers and manufacturers of packaging for food, pharmaceutical, medical, and other consumer products. The company emphasizes making responsible packaging that is lightweight, recyclable, and reusable. Amcor, which trades on the NYSE, was formed in June 2019 with the merger between two packaging companies, U.S-based Bemis Co. Inc. and Australia-based Amcor Ltd.
AMCR has increased its dividend for over 25 consecutive years, and is on the exclusive list of Dividend Aristocrats.
Amcor reported its third quarter results for Fiscal Year 2024 on April 30. GAAP diluted EPS reached 12.9 cents, with GAAP net income hitting $187 million. Adjusted EBIT rose by 3% to $397 million on a comparable constant currency basis, while adjusted EPS saw a 1% increase to 17.8 cents. Shareholders benefited from a rise in quarterly dividends to 12.5 cents per share, alongside $30 million in shares repurchased.
The outlook for Adjusted EPS for fiscal 2024 was raised to 68.5-71 cents per share, with Adjusted Free Cash Flow expected to range from $850-950 million. Looking ahead, Amcor anticipates sustained growth, with Adjusted EPS for fiscal 2024 projected to range from 68.5 to 71 cents per share and adjusted free cash flow estimated at approximately $850 million to $950 million. The company plans to allocate around $70 million towards share repurchases as part of its ongoing program.
Amcor is counting on its Bemis acquisition to drive strong growth over the next half decade. The main factors that will drive this growth acceleration are its global footprint opening up new attractive end markets and customers for the company’s products, and greater economies of scale driving efficiencies and higher margins.
Another growth catalyst for Amcor is the emerging markets such as China and Latin America, where economic growth is high and demand for packaging products is rising.
With a projected dividend payout ratio of 71% for 2024, the dividend appears secure.
AMCR stock currently yields 5.1%.
'There's a Great Future in Plastics'
LyondellBasell Industries LYB goes back to 1955, when its predecessor company began industrial-scale production of polyethylene in Germany. Today LyondellBasell is one the largest plastics, chemicals and refining companies in the world. The company provides materials and products that help advance solutions for food safety, water purity, fuel efficiency of vehicles, and functionality in electronics and appliances. LyondellBasell sells products in more than 100 countries and is the world’s largest producer of polymer compounds. LYB generated $41.1 billion in sales last year.
In the 2024 first quarter, revenue totaled $9.9 billion, which was about 3.1% lower compared to Q1 2023. LyondellBasell also posted a modest decline in EBITDA, which fell 32.7% to $1.05 billion. The company's results reflect regional challenges and strategic focus. In North America, lower costs boosted margins for olefins and polyolefins, but operational downtime limited volumes. Europe saw increased utilization of local assets due to logistical disruptions.
Globally, subdued demand for durable goods affected polypropylene and propylene oxide. Net income equaled $473 million, or $1.44 per share, essentially flat year over year. In Q2, the company expects seasonal demand improvements across most businesses. Low costs for natural gas and NGLs should continue to benefit margins from LYB's North American and Middle East production relative to higher oil-based costs in most other regions.
Over time LyondellBasell can drive earnings growth from a blend of organic growth and acquisitions. For example, the company paid $2.25 billion for the acquisition of A. Schulman, Inc. in 2018, which doubled LyondellBasell’s compounding business. It also gave the company exposure to new categories such as consumer products, appliances, and agriculture. In addition, the company recently launched a three-pillar strategy to create a more profitable and sustainable growth engine. Lastly, the share buyback program can boost bottom-line growth.
LyondellBasell’s primary competitive advantage is its leading industry position. It is the world's largest producer of polypropylene compounds and the largest licensor of polyolefin technologies. It also has a vast intellectual property portfolio, with over 5,500 patents.
LYB has increased its dividend for 12 consecutive years and currently yields 5.5%.
At the time of publication, Ciura had no positions in any stocks mentioned.