Want Dividends? How to Avoid Dead-Money Sectors

This is part of a YCharts series analyzing dividend-payers across all 10 sectors of the S&P 500. The first in our series showed readers how to find dividend stars and focused on healthcare stocks. Subsequent articles focused on dividend stars among consumer defensive stocks, utility stocks, financial stocks, industrial stocks, consumer cyclical stocks, energy stocks and telecom stocks.

The basic materials sector has struggled for traction amid sluggish global growth. Over the past five year’s the materials sector within the S&P 500 has posted an annualized return below 1%, compared to 5.5% for the entire index. And so far this year, there’s no indication of an inflection point: The sector’s 4.5% first quarter return was less than half the gain for the entire S&P 500.

For income investors looking to add sector diversification, basic materials offers slim pickings. Just five firms made it through our YCharts Stock Screener that required a current dividend yield of at least 2%, a 5-year annualized dividend growth rate of at least 4% (the sector’s median) and a forward PE multiple no higher than the sector’s 13.9 average.

Both Freeport-McMoran Copper & Gold (FCX) and Newmont Mining (NEM) are rated Attractive using YCharts proprietary analysis available to Pro subscribers. But as if this needs to be pointed out, commodities and the companies that mine them are not exactly on the right side of the demand curve these days.

^DSPM Chart

^DSPM data by YCharts

That Goldman Sachs (GS) recently advised clients to short gold isn’t going to help matters.

Whether you think the current dividend yield for Newmont Mining and the dividend yield for Freeport-McMoran is ample recompense hinges on your sense of when global commodity demand will pick up; or more to the point, how close the stocks are to cyclical bottoms.

Newmont has delivered more consistent dividend growth.

NEM Dividend Chart

NEM Dividend data by YCharts

And despite the cyclical headwinds, Newmont’s 38% payout ratio suggests there is ample room for the dividend to keep growing.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com.



Please note that this feature is only available as an add-on to YCharts subscriptions.

Please note that this feature requires full activation of your account and is not permitted during the free trial period.

Start My Free Trial {{root.upsell.info.call_to_action}} No credit card required.

Already a subscriber? Sign in.