The Zacks Chemicals Diversified industry is still recovering from the havoc wreaked by coronavirus, taking succour from an upturn in demand across major end-use industries such as automotive, building & construction and electronics. The demand recovery has been backed by an uptick in global manufacturing and industrial activities.
The industry players put up a decent earnings performance in the June quarter on the back of healthy end-market demand and self-help actions amid continued headwinds from higher raw material, energy and logistics costs.
Demand for both commodity and specialty chemicals has been healthy in key end-use markets. Also, demand from the automotive market continues to hold up well, despite the semiconductor shortage, which is still affecting automotive builds globally. Demand in construction, packaging and healthcare remains strong. In particular, strength is being witnessed in residential construction globally. The companies in this space are also seeing a recovery in demand across the aerospace and energy markets. A recovery in drilling activities on the back of a spike in oil prices has led to an uptick in demand in the energy space.
However, diversified chemical companies remain buffeted by raw material cost inflation as well as supply-chain and freight transportation disruptions. Supply-chain disruptions have led to a spike in raw material costs. The Russia-Ukraine conflict and new lockdowns in China following a resurgence in COVID-19 infections have put more pressure on the already-strained global supply chain and affected chemical demand. Higher energy and gas prices have also pushed up production costs of chemicals. The impacts of these headwinds are likely to reflect on the chemical companies’ performance in the second half of 2022.
The current challenges in the industry should not, however, leave investors shunning the stocks belonging to this space. We believe that attractive dividend-paying chemical stocks — The Chemours Company CC, Cabot Corporation CBT, Huntsman Corporation HUN, LyondellBasell Industries N.V. LYB and Tronox Holdings plc TROX — should remain on investors’ radar notwithstanding the near-term headwinds.
Look for Safe Havens Amid Market Volatility
Financial markets across the globe have been spooked by a concoction of factors this year. The markets have been buffeted by issues such as rising interest rates, persistently high inflation and fears of a recession. These factors have contributed to a rough ride for investors for the most part of 2022.
With market volatility unlikely to subside anytime soon, it is wise for investors to look for safe-haven stocks that promise attractive and steady returns. Stocks offering healthy dividend hold up well in an uncertain macroeconomic environment, when capital gains are hard to come by.
Stocks with a solid dividend yield and attractive growth prospects offer excellent choices for investors seeking to create a portfolio that not only performs well in a growing market, but also offers some downside protection during market downturns. In other words, high-yielding dividend stocks provide a cushion against stormy markets.
Consistent dividend payouts also underscore a company’s financial strength and stability. Dividend income helps to mitigate losses in a bear market.
In the words of the late Richard Russell, long-time publisher of the Dow Theory Letters, “A stock dividend is something tangible — it’s not an earnings projection; it’s something solid, in hand. A stock dividend is a true return on the investment. Everything else is hope and speculation.”
How to Pick the Best Dividend Stocks?
Against the current volatile macroeconomic backdrop, it would be prudent to add some top-quality dividend-paying chemical stocks in your portfolio. We have employed the Zacks Stocks Screener to find companies that offer a dividend yield of more than 2% (the ratio measures how much a firm pays its shareholders in dividends annually per dollar invested. The criterion includes companies with a dividend yield above the S&P 500′s average dividend yield of roughly 2%), a dividend payout ratio of less than 60% (calculated as Dividends Per Share/Earnings Per Share, the metric helps an investor measure the safety of a company's dividend. A payout ratio below 60% is a good indicator that the dividend will be sustainable), five-year historical dividend growth of greater than or equal to 0.001 (includes companies that have increased their dividend over the past five years). Our shortlisted stocks also carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Below we highlight five top picks from the Zacks Chemicals Diversified industry.
Chemours: Based in Delaware, Chemours is a leading provider of performance chemicals. It is benefiting from a rebound in demand from the coronavirus-led downturn, strong execution and cost-cutting actions. Chemours is witnessing an increasing adoption of its Opteon platform. Demand for Opteon remains strong in mobile and stationary applications. CC’s cost-reduction program along with its productivity and operational improvement actions across its businesses are also expected to support margins.
Chemours pays out a quarterly dividend of 25 cents ($1.00 annualized) per share, which gives it a 2.80% yield at the current stock price. CC’s payout ratio is 18%, with a five-year dividend growth rate of 29.96%. Check Chemours’ dividend history here>>>
The Chemours Company Dividend Yield (TTM)
The Chemours Company dividend-yield-ttm | The Chemours Company Quote
Cabot: Massachusetts-based Cabot is a global specialty chemicals and performance materials company. It is benefiting from strong underlying demand across its businesses. Higher volumes and favorable pricing are likely to drive results in its Reinforcement Materials segment. Its Performance Chemicals unit is also expected to gain from price increases. Volumes are also likely to be driven by growth in Battery Materials applications.
Cabot pays out a quarterly dividend of 37 cents ($1.48 annualized) per share, giving it a 2.02% yield at the current stock price. CBT’s payout ratio is 25%, with a five-year dividend growth rate of 3.23%. Check Cabot’s dividend history here>>>
Cabot Corporation Dividend Yield (TTM)
Cabot Corporation dividend-yield-ttm | Cabot Corporation Quote
Huntsman: Texas-based Huntsman is a leading manufacturer of differentiated and commodity chemical products. Huntsman remains focused on expanding its downstream specialty and formulation businesses. The company's Polyurethanes segment is well positioned for strong upside in the long term on the back of its focus on ramping up its high-value differentiated downstream portfolio. HUN should also gain from significant synergies of acquisitions. Its strong liquidity and balance sheet leverage gives it adequate flexibility to continue developing and expanding its core businesses through acquisitions and internal investments.
Huntsman pays out a quarterly dividend of 21.25 cents (85 cents annualized) per share, giving it a 3.12% yield at the current stock price. HUN’s payout ratio is 19%, with a five-year dividend growth rate of 7.71%. Check Huntsman’s dividend history here>>>
Huntsman Corporation Dividend Yield (TTM)
Huntsman Corporation dividend-yield-ttm | Huntsman Corporation Quote
LyondellBasell: Texas-based LyondellBasell is among the leading plastics, chemical and refining companies globally. LYB is expected to benefit from its strong business portfolio, healthy demand for polymers in packaging markets and favorable margins for oxyfuels and refined products.
LyondellBasell pays out a quarterly dividend of $1.19 ($4.76 annualized) per share, giving it a 5.66% yield at the current stock price. LYB’s payout ratio is 26%, with a five-year dividend growth rate of 4.53%. Check LyondellBasell’s dividend history here>>>
LyondellBasell Industries N.V. Dividend Yield (TTM)
LyondellBasell Industries N.V. dividend-yield-ttm | LyondellBasell Industries N.V. Quote
Tronox: Based in Connecticut, Tronox is a leading producer of high-quality titanium products, including titanium dioxide (TiO2) pigment. Tronox is benefiting from higher sales volumes of TiO2 and zircon. Higher customer demand on the back of the ongoing economic recovery is supporting volume growth. Higher TiO2 and zircon prices are also aiding its performance. TROX's regional pricing initiatives are contributing to pricing gains.
Tronox pays out a quarterly dividend of 12.5 cents (50 cents annualized) per share, giving it a 3.42% yield at the current stock price. TROX's payout ratio is 19%, with a five-year dividend growth rate of 26.33%. Check Tronox’s dividend history here>>>
Tronox Holdings PLC Dividend Yield (TTM)
Tronox Holdings PLC dividend-yield-ttm | Tronox Holdings PLC Quote
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cabot Corporation (CBT) : Free Stock Analysis Report
Huntsman Corporation (HUN) : Free Stock Analysis Report
LyondellBasell Industries N.V. (LYB) : Free Stock Analysis Report
Tronox Holdings PLC (TROX) : Free Stock Analysis Report
The Chemours Company (CC) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research