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E I Du Pont De Nemours And Co (DD), Praxair, Inc. (PX): Five Value Line’s Dividend Picks to Play It Safe in the Materials Sector

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Editor’s Note: Related tickers: Praxair, Inc. (NYSE:PX), Air Products & Chemicals, Inc. (NYSE:APD), Sonoco Products Company (NYSE:SON), Bemis Company, Inc. (NYSE:BMS), E I Du Pont De Nemours And Co (NYSE:DD), Syngenta AG (ADR) (NYSE:SYT), Monsanto Company (NYSE:MON)

Following a weak second half of 2012, the industrial materials sector has shown some signs of picking up pace. Even though the fiscal cliff concerns dampened demand across the U.S. economy and weak growth overseas continued to exert pressure in the first quarter, better days for the industrial materials are likely in the quarters ahead. The risks to the downside persist, but the outlook is more optimistic.

E I Du Pont De Nemours And Co (NYSE:DD)

Among stocks in the materials sector, Value Line identifies a few dividend-payers with a proven track record of long-term price stability—referring to low volatility of price returns—and sound financial strength—implying solid corporate balance sheets.

Below is a closer look at five of its best-rated dividend payers, each yielding more than the average indicated dividend yield of the S&P 500 Composite Stock Price Index, and boasting a market cap of at least $3.6 billion. Not unlike this market-beating strategy, ardent investors would be wise to pay attention.

Praxair, Inc. (NYSE:PX)

Praxair, Inc. (NYSE:PX) is a producer of atmospheric and process gases and surface coatings. In fact, it is the largest and only fully integrated industrial gases company in North America. Praxair, Inc. (NYSE:PX) pays a dividend yield of 2.1% on a payout ratio of 40% of the current-year EPS estimate. Its five-year historical annualized dividend growth rate is 12%. The company has raised dividends for 20 consecutive years. One reason for such a strong history of dividend hikes is the nature of the company’s revenue streams, which are under long-term contracts, with high renewal rates. This, in addition to absence of commodity pricing exposure, makes Praxair, Inc. (NYSE:PX)’s revenue streams relatively stable for a cyclical company.

The company is also focused on delivering productivity savings of at least 5% of total cost stack each year, which is helping boost, its operating cash flow. Praxair, Inc. (NYSE:PX)’s operating cash flow, at $2.8 billion in 2012, has grown at a 12% CAGR since 1992. As regards its financial performance in 2013, the company expects “base volumes to grow modestly given the current uncertainty in the macro-economic environment,” with adjusted EPS projected to grow by between 6% and 9%. The stock is valued at 17.2x forward earnings. Billionaire Steve Cohen significantly boosted his stake in Praxair, Inc. (NYSE:PX) during the first quarter; see Steve Cohen’s top picks.

Air Products & Chemicals, Inc. (NYSE:APD)

Air Products & Chemicals, Inc. (NYSE:APD) is a diversified gas and chemicals company, and the world’s largest helium supplier. The company pays a dividend yield of 3.1% on a payout ratio of 52% of the current-year EPS estimate. Its five-year historical annualized dividend growth rate is 10.7%. The company has increased dividends for 31 years in a row, and is thus one of the S&P Dividend Aristocrats. Like Praxair, Inc. (NYSE:PX), Air Products & Chemicals, Inc. (NYSE:APD) benefits from a diversified customer base in the non-cyclical sectors under long-term contracts with high renewal rates. In fact, some 42% of its revenue is under contracts with 15-to-20 year terms and low volume risk. Due to weakness in its fiscal second quarter (ended March 31), the company “tempered expectations” for economic growth in the second half of the year.

It now expects a full fiscal year 2013 EPS growth of between 0.9% and 3.7%. A faster pace of the global economy’s expansion in the second half could surprise to the upside. Valued at 15.5x forward earnings and boasting an EPS growth rate of 10.5% for the next year, Air Products & Chemicals, Inc. (NYSE:APD), like Praxair, is listed among the new Goldman Sachs’ cyclical stocks picks with “lower valuations and stronger growth expectations than the market,” as described by a MarketWatch article.

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