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5 Dividend-Paying Chemical Stocks To Enrich Your Portfolio

Published 03/28/2018, 08:59 AM
Updated 07/09/2023, 06:31 AM

The chemical industry demonstrated a stellar performance in fourth-quarter 2017. A host of companies in the space delivered better-than-expected earnings driven by strategic measures like pricing actions, improving productivity, restructuring of portfolio and earnings-accretive acquisitions along with continued strong demand across automotive and construction markets. Moreover, President Donald Trump’s business-friendly tax reform contributed to the impressive performance.

The chemical industry is grouped under the Zacks Basic Materials sector, which was among the Zacks sectors that scored the strongest gains in the fourth quarter. Overall earnings for the sector climbed 45.2% while revenues jumped 21.3%. Around 89.5% of the sector participants posted earnings beat and around 73.7% surpassed revenue expectations.

How are Things Shaping Up in the Chemical Industry?

The chemical industry is benefiting from a resurgent global economy and strength across major end-use markets including automotive and construction. Moreover, the fundamentals across the energy space, another key market for chemicals, have been improving lately. A rebound in crude oil prices has helped recover demand for chemicals in the energy market.

Healthy Demand and Exports to Drive U.S. Chemical: The U.S. chemical industry is likely to benefit from capital investments, higher demand across housing markets and light vehicles and improving export markets.

Latin America and Asia — two of the key export markets for the industry — are expected to play a significant role in the growth of basic chemical production this year and the next. Moreover, strengthening export markets along with increasing capital spending have been driving the demand for chemicals across key end-use markets such as light vehicles and housing.

Per the industry trade group, American Chemistry Council (“ACC”), the U.S. chemical production (excluding pharmaceuticals) is expected to rise 3.7% in 2018 and further accelerate to 3.9% in 2019.

Continued Investments to Boost Growth: The United States remains an attractive destination for investment and the domestic chemical makers continue enjoying the availability of cheaper and abundant feedstocks and energy, which is driving investments in chemical projects.

The chemical industry invested $185 billion in restarting plants, expansions and building new factories across the United States with more than 50% of these projects under the planning stage, per the ACC. This is likely to boost capacity and exports in the long run.

Revival of the EU Chemical Industry: The European chemical industry is finally experiencing an upturn after a long time, thanks to an improving global economic sentiment and positive developments across the Eurozone, which is driven by factors like monetary stimulus from the European Central Bank, declining unemployment, strengthening consumer and business confidence.

Per the European Chemical Industry Council (“CEFIC”), chemical output in the EU rose above the pre-economic crisis level for the first time in fourth-quarter 2017. CEFIC projects the chemical output in EU to rise 2% year over year in 2018.

How Dividend Paying Stocks Can Boost Your Portfolio

In addition to the positive developments mentioned earlier, we believe that the Tax Cuts and Jobs Act will be another major tailwind for dividend paying stocks in the chemical space.

The newly introduced tax reform significantly reduces the corporate tax rate from 35% to 21%, which is a positive for chemical stocks. This is expected to boost their bottom line, improve cash flows and incentivize capital investment. Moreover, many of the companies are likely to pay more dividends and buyback shares reaping the benefits of the new tax law.

5 Top-Notch Dividend Players

We have employed the Zacks Stocks Screener to find chemical companies that offer a dividend yield of more than 2% and sport a favorable Zacks Rank.

Below we highlight five top-ranked chemical stocks that offer attractive dividend yield and also boast solid long-term growth prospects.

LyondellBasell Industries N.V. (NYSE:LYB)

This Netherlands-based company is among the leading plastics, chemical and refining companies globally. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The stock offers a healthy dividend yield of 3.8% and has an expected long-term earnings per share growth rate of 9%.

Kronos Worldwide, Inc. (NYSE:KRO)

This Texas-based company is a leading producer and marketer of titanium dioxide or TiO2 pigments, which are used in a wide array of industrial product applications such as plastics, coatings and paper.

The stock currently flaunts a Zacks Rank #1 and offers a dividend yield of 3%. The company has an expected long-term earnings per share growth rate of 5%.

Huntsman Corporation (NYSE:HUN)

Texas-based Huntsman is a global producer of differentiated organic chemical products and currently carries a Zacks Rank #2 (Buy).

The stock offers a dividend yield of 2.2% and has an expected long-term earnings per share growth rate of 8.3%.

Methanex Corporation (NASDAQ:MEOH)

This Canada-based company is the world’s largest producer and supplier of methanol. The stock currently carries a Zacks Rank #2 and offers dividend yield of 2.2%. It has an expected long-term earnings per share growth rate of 15%.

Eastman Chemical Company (NYSE:EMN)

This Zacks Rank #2 company is a global chemical producer boasting a broad portfolio of chemical, plastic and fiber products.

The stock has a dividend yield of 2.1% and an expected long-term earnings per share growth rate of 8.9%.

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Eastman Chemical Company (EMN): Free Stock Analysis Report

Methanex Corporation (MEOH): Free Stock Analysis Report

Kronos Worldwide Inc (KRO): Free Stock Analysis Report

Huntsman Corporation (HUN): Free Stock Analysis Report

LyondellBasell Industries N.V. (LYB): Free Stock Analysis Report

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