From an investment standpoint, the basic materials sector has been absolutely dreadful in 2013. Aggregate returns for all publicly traded companies in this space are -0.1% year-to-date, the only sector in the red. Due to this recent underperformance, it’s more important than ever for income investors to find names that can boost dividend payouts in the future; let’s take a look at three basic materials stocks that yield over 4% and have low payout ratios.
Compania de Minas Buenaventura
Compania de Minas Buenaventura SAA (NYSE:BVN) is a gold miner that has burned many investors this year. Shares of the Peru-based mid cap have lost over two-thirds over their value in 2013, completely destroying any hope investors had of capitalizing on its 4%-plus dividend yield. As we discussed a few weeks ago (read our full analysis of the gold mining industry), Compania de Minas has elected to shut down several unprofitable mines in the face of falling bullion prices.
In comparison to the sales of inefficient mines carried out by larger peers like Newmont Mining Corp (NYSE:NEM) and Barrick Gold Corporation (USA) (NYSE:ABX), Compania de Minas is taking a bit of a different approach to tackle the gold bear market. For investors betting on a recovery in the yellow metal sooner rather than later, this miner may be better positioned to capitalize because of its decision to hold onto higher-cost mines (while even buying some from peers like Newmont).
Minas pays just 27% of its earnings out as dividends, and the long-term dividend history is generally healthy. Cliff Asness, Howard Marks and Jim Simons are just a few of the noteworthy names invested in the stock (see the entire list here), so we’ll be watching how they treat it in the next round of 13F filings.
Diversified chemicals and energy company Sasol Limited (ADR) (NYSE:SSL), meanwhile, is another under followed stock with a dividend payout ratio (40%) below many of its peers. Like Compania de Minas, Sasol is held by some of the hedge fund industry’s biggest stars, and it’s important to track these managers for their market-beating potential (discover why here).
In the case of this stock, the yield of nearly 4.6% is very attractive considering that free cash flows nearly sextupled last year, and Wall Street forecasts earnings to grow by almost 10% this year. Trading at just 11 times trailing EPS and generally fair valuation metrics across the board, it’s not unreasonable to park some money in Sasol with the hope of a dividend hike in the intermediate term. The company has returned 15% year-to-date and has paid biannual dividends 1996; outlays have nearly doubled in the past nine years.