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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

Published on May 24, 2013 at 12:44 pm by Serkan Unal in Dividend Stocks
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Sonoco Products Company (NYSE:SON)

Sonoco Products Company (NYSE:SON) produces industrial and consumer packaging products globally. The stock pays a dividend yield of 3.5% on a payout ratio of 54% of the current-year EPS estimate. The company has paid dividends for 352 consecutive quarters, dating back to 1925. Its five-year historical annualized dividend growth rate is 2.9%. The challenging economic environment lead to the company’s weak financial performance in the first quarter; however, the company’s operating and free cash flow swelled due to lower pension and other benefit plan contributions and changes in working capital.

The company projects EPS growth of between 2.3% and 5.0% this fiscal year. Moreover, the company’s long-term targets are $5.5 billion to $6 billion (up from approximately $4.8 billion in 2012) for sales and 10% annually for base EPS. Growth will be driven by organic sales, new products, and acquisitions. Its longer-term strategy also includes shifting sales mix toward less cyclical consumer-related markets. The company’s exposure to volatility in raw material prices and its relatively sizable exposure to Europe remain its weak points. Sonoco Products Company (NYSE:SON) is trading at 15x forward earnings, on par with its industry’s forward multiple.

Bemis Company, Inc. (NYSE:BMS)

Bemis Company, Inc. (NYSE:BMS) is a producer of flexible packaging products. It pays a dividend yield of 2.6% on a payout ratio of 43% of the current-year EPS estimate. The company’s five-year historical annualized dividend growth rate is 3.5%. Bemis has raised dividends for 30 consecutive years, and is thus an S&P Dividend Aristocrat. The company is most exposed to North America, as the region accounts for 69% of the firm’s net sales. The company sees 2013 volume levels consistent with those last year, and anticipates “generally stable raw material cost environment.” In a low growth environment, its focus is on cost management.

In the first quarter, Bemis Company, Inc. (NYSE:BMS) hit a record adjusted EPS. For the year as a whole, its adjusted EPS will grow by between approximately 7% and 14%. In the long run, analysts forecast Bemis Company, Inc. (NYSE:BMS)’s EPS CAGR of 7.8%. The company expects that its growth will be driven by emerging markets’ food safety regulations, an increased consumer focus on convenience features, and a greater need for shelf stable foods. Bemis Company, Inc. (NYSE:BMS) is trading at 16.7x forward earnings, above the packaging industry’s average forward multiple of 15.1x.

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

E I Du Pont De Nemours And Co (NYSE:DD) is a global chemical and technology conglomerate. Its dividend yields 3.2% on a payout ratio of 46% of the current-year EPS estimate. The company’s five-year historical annualized dividend growth rate is 1.7%. E I Du Pont De Nemours And Co (NYSE:DD) has been paying dividends since 1904. This year, it hiked its dividend by 5%. The company is committed to growing its future dividends in line with earnings. Last year, E I Du Pont De Nemours And Co (NYSE:DD) struggled with weak growth, as operating EPS dropped due to the weakness in the company’s titanium dioxide and photovoltaic businesses. This year, however, the company expects “continued strong growth in agriculture and anticipated overall improvement in global industrial market demand.”

Hence, for 2013 as a whole, DuPont projects a 2%-to-7% growth in its adjusted operating EPS. Still, for the reference, its long-term sales CAGR target is 7% and its adjusted operating EPS CAGR target is 12%. E I Du Pont De Nemours And Co (NYSE:DD)’s growth drivers are its product innovation, which annually accounts for about 30% of sales, and emerging market growth, which has averaged a 22% CAGR since 2008. E I Du Pont De Nemours And Co (NYSE:DD)’s latest licensing agreements with Syngenta AG (ADR) (NYSE:SYT) and Monsanto Company (NYSE:MON) will also contribute; read more about it here and here. DuPont is trading at 13.5x forward earnings, below the commodity chemicals industry’s multiple of 14.6x.

Final thoughts

Like most dividend-paying stocks, the five companies mentioned on Value Line’s list aren’t the sexiest. From Bemis Company, Inc. (NYSE:BMS) to E I Du Pont De Nemours And Co (NYSE:DD), from Sonoco Products Company (NYSE:SON) to Air Products & Chemicals, Inc. (NYSE:APD) to Praxair, each of the aforementioned equities offer solid safety moving forward, and should be relatively insulated from any economic shocks that could occur in the near- to intermediate-term.
Disclosure: none

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