As the years have progressed, commodity exposure has evolved from a binary factor, either you have it or you don’t, to a necessary component of every portfolio. But as markets have been continually beaten down as of late, for many investors, finding the right commodity allocation has been something of a difficult task. A number of investors have stopped looking for growth, and taken cover in value funds that pay out annual yields in a time when no returns are guaranteed [see also The Guide To The Biggest Companies In Every Major Commodity Sector].
Dividend payments are a crucial element to investing, as they not only provide inflation hedges and steady income, but they also point to a company that is healthy. Typically only a strong company is able to pay out cold hard cash to its investors, where as a non-dividend company has an easier time cooking its books to make everything appear business as usual. Below, we outline companies with strong dividend payouts in a number of major commodity sectors, giving value investors a great way to add not only commodity exposure, but another income stream to your portfolio as well [for more commodity new subscribe to our free newsletter].
As far as this sector is concerned, Deere & Company (DE) is one of the top dogs. Branded “John Deere”, the company is the leading agricultural machinery manufacturer on the globe. DE makes everything from tractors and ATVs, to combine harvesters and balers. The firm has a market cap of $30.62 billion and trades about 5.8 million shares on a daily basis. While DE is not directly tied to any specific commodity, its products help cultivate and produce a wide variety of mainstay agricultural crops like corn and wheat, meaning that the health of the agriculture sector and underlying commodities alike will have a major impact on profits. DE pays out an annual dividend yield of 2.2% [see also Invest Like Jim Rogers With These Three Agriculture Stocks].
When it comes to aluminum, Alumina Limited (AWC) offers one of the best value plays. The company was formed in 2003 in a spin-off from Western Mining Company and is one of the largest companies on the Australian Securities Exchange. AWC’s business comes solely from a 40% stake in a joint venture with Alcoa which yields the extraction of bauxite, alumina, and aluminum smelting. The company controls roughly 17% of the global alumina market, making it a major player when it comes to this ultra-popular industrial metal. AWC pays out a healthy dividend of 3.6%, giving it an edge over Alcoa’s significantly smaller dividend.
Coal has long been a major source of energy for the world and while it may not be the cleanest burning fossil fuel, it will certainly remain an important energy source for many years to come. One of the most valuable coal miners comes from Yanzhou Coal Mining Company (YZC). The company is headquartered in the People’s Republic of China and is the only coal mining stock to be listed on all three of the Hong Kong, Shanghai, and New York Stock exchanges. YZC as a stock is popular among traders with a nice daily volume of 275,000 and a market cap eclipsing the $12.8 billion mark. Its dividend yield of 3% will make for a nice coal allocation to your portfolio while adding a steady stream of income [see also Commodity Investing: Physical vs. Futures].
As far dividend players in the copper sector go, few match the promise of Southern Copper Corporation (SCCO). The company is one of the largest publicly traded copper miners and is headquartered in Phoenix, Arizona. The majority of the company’s operations take place in Peru and Mexico given that over 75% of the corporation is owned the the Mexican miner Grupo Mexico. Along with copper, SCCO is a major producer of molybdenum, zinc, silver, and gold. SCCO is one of the highest-paying dividend companies on this list, coming in with an annual yield of 8%.
Gold has been an extremely popular commodity recently as its price has skyrocketed over the past few years. Now that the Swiss franc is officially pegged to the euro, many feel that this is the last safe-haven investment available. While there are a number of massive gold miners, Newmont Mining Corporation is one of the better value options. Newmont is based in Denver, Colorado, and is among the world’s largest gold producers. Active mines for the company lie all over the world in places like Indonesia, Australia, Ghana, and the US. As of the end of 2010, the company produced 5.4 million ounces of gold annually while boasting proven reserves nearing 94 million. While its dividend yield of 1.8% isn’t anything extreme, when compared to the rest of its sector, NEM makes for one of the best dividend plays [see also Three Reasons Why Gold Is Overvalued].
Plum Creek Timber (PCL) is an investor favorite for gaining access to this sector as it is one of the largest public lumber firms in the country. PCL is the largest private landowner in the U.S., the majority of which, is timberland, giving a strong outlook for this big-time player in the lumber space. The stock has a current market cap of $5.7 billion and trades relatively actively, with over 1.5 million shares exchanging hands on a daily basis. Technically, PCL is a REIT, a move it made for tax and accounting advantages, though its business is derived from selling and producing various wood products. PCL pays out a dividend yield of 4.7%, something of a rarity for lumber firms.
Master Limited Partnerships have long been known for their high yields as the offer exposure to the infrastructure of natural gas and crude oil industries. One of the better-paying companies comes from Enbridge Energy (EEP). The company majority owned by Enbridge, which operates some of the longest crude oil and liquids pipelines in the U.S. and Canada, is responsible for delivering more than two million barrles of crude oil each day, making it a very important pipeline. The company pays out a healthy yield of 7.5% but should be given a closer look, as a number of MLPs sporting high yields are designed to terminate after a certain period of time [see also [see also Top Seven Strangest Commodity Futures].
Though a number of specific metals have their own respective sectors, when it comes to general metals mining, few companies have the clout that BHP Billiton (BHP) has amassed. The company has a massive market cap of $207 billion, making it one of the largest companies in the world. BHP is responsible for mining a vast amount of metals including copper, gold, lead, zinc, iron ore, manganese, coal, aluminum, and others. The company has headquarters in both London and Australia while paying out a dividend yield of 2.9%, creating a good large cap value play for risk-averse investors.
Crude oil is one of the most prolific commodities as it has a major impact on a number of other commodities all around the world. As such, investments in this sector are incredibly popular, and a number of major oil companies offer competitive yields. British Petroleum (BP), however, offers one of the most enticing yields in the space, with an annual dividend yield of 4.7%. BP was under major scrutiny last year after the Deepwater Horizon spill caused massive damage in the Gulf of Mexico. While its stock price has yet to recover, the company was able to reinstate dividends to add value back to its large cap structure [see also Major Countries Burn Up Crude Reserves: Big Oil In Trouble?].
Steel is one of the most important industrial metals as its strength provides as a base for a number of important structures in skyscrapers, automobiles, and much more. One of the world’s largest steel makers comes from Companhia Siderurgica Nacional (SID). The company is based in Rio De Janeiro and is one of the biggest steel manufacturers in Brazil. The company accounts for nearly half of all steel products sold in the emerging market and also has significant operations in tin. The company also sets itself apart from the competition by being one of just a handful of companies to own its own iron ore source, a major component of steel production. SID pays out a dividend yield of 7.1% for those value investors who do not mind the emerging market exposure [see also Powerhouse Producers: Cocoa, Platinum, Rare Earth Metals].
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Disclosure: Jared is long BP.