In an inflationary environment, commodities are king.
One of the few bright spots in a volatile 2022 has been the materials sector, where a few top commodity stocks have managed to hang tough or even generate significant profit while the rest of Wall Street has been left behind. That’s because in an environment where inflation is driving up the cost of raw materials and pinching margins for end users, the companies that refine those raw materials and bring them to market are in a great spot. If you’re interested in tapping into the upswing for commodity stocks, then consider one of the following companies that offers upside by playing raw materials as well as a stream of consistent dividend payments on top of that.
Alliance Resource Partners LP (ticker: ARLP)
A $3 billion producer of energy commodities, Alliance was on the outs a few years ago thanks to a focus on thermal coal. However, rising energy prices have benefited its oil and gas business, and more importantly the sky-high costs of these commodities plus supply chain disruptions for electricity providers have resulted in rising demand for comparatively dirty coal. As proof, Alliance sales are tracking 60% growth in fiscal 2022 and another 10% in fiscal 2023. The company has generously increased dividends for shareholders as the profits have rolled in, and at current payouts offers roughly four times the distribution of the typical S&P 500 component.
Dividend yield: 6.8%
Barrick Gold Corp. (GOLD)
Barrick is a precious metal producer headquartered in Canada but operates mines as far away as Argentina and the Congo. According to its annual report, Barrick’s gold reserves tally 69 million ounces, or $115 billion in total value based on current prices per ounce. Of course, current gold prices are down sharply from their prior highs, so shares of GOLD have also been down this year. Considering the current inflationary pressures, however, it may be likely we’ll see the precious metal’s price stabilize and rise once more. In the meantime, a generous dividend is an incentive for investors to make this top commodity stock a part of their portfolio.
Dividend yield: 2.6%
Enterprise Products Partners LP (EPD)
Another energy commodity stock, Enterprise is a $57 billion “midstream” stock that is more insulated from oil and gas volatility than its peers. That’s because it stands between companies that take oil or gas out of the ground and the wholesalers and refiners at the end of the supply chain. This reliable model may not throw off the huge margins of a small-cap explorer in the oil patch, but EPD stock is still up 24% year to date as of Sept. 21 and offers a tremendous yield on top of that. And looking forward, the firm has planned $5.5 billion in spending through 2025 to ensure it stays dominant and can support those payouts for many years to come.
Dividend yield: 7.5%
Exxon Mobil Corp. (XOM)
If you’re after commodities that have risen lately, the first thing you’re likely to think of is oil and gas. And if you’re thinking of the leading companies in the industry, Exxon is at the top of the list. While XOM faces long-term challenges amid the realities of climate change, it’s undeniably having a great run thanks to rising oil and gas prices. It also has returned a lot of its recent windfall profits back to shareholders, including tripling its stock buyback plan to $30 billion on top of a generous and reliable dividend. This ensures that even if oil prices move sideways for a while, this commodity stock can continue to deliver for shareholders.
Dividend yield: 3.9%
3M Co. (MMM)
A $70 billion chemicals and materials giant, 3M has a brand portfolio with more than 6,000 patented products across all manner of industries. Its specialty chemicals include polymers and coatings that are crucial raw materials for many of its clients, and a diverse family of customers ensures that no one industry or business line will ever make or break operations. Income investors will also be pleased to know that with more than 60 years of consecutive dividend increases, this icon of the materials sector has one of the most enviable payout records on Wall Street.
Dividend yield: 5.2%
Sociedad Química y Minera de Chile SA (SQM)
It’s weird to think of a mining stock as a play on high-tech megatrends instead of a run-of-the-mill commodities company. But that’s exactly what you get with Chile’s SQM. As one of the largest lithium miners in the world, the nearly $30 billion SQM is a key provider of battery metals like lithium that are vital to the production of electric vehicles as well as smartphones and other cutting-edge electronics. The stock has doubled year to date as of Sept. 21 even as the rest of Wall Street has melted down, thanks to the unique niche of this commodity stock. And while the irregular payments of this international company don’t follow the quarterly drumbeat of domestic stocks, the last year of distributions from SQM adds up to a nice income stream on top of that.
Dividend yield: 4.4%
Vale SA (VALE)
A leader in both precious and industrial metals, mega-miner Vale is a $63 billion operation that produces iron ore used in steelmaking along with copper, gold, silver and cobalt. Despite broad tail winds for the materials produced by this commodity stock, Vale has actually lost ground this year in part because of supply chain disruptions and competition eating into its China-oriented operations. However, the yield is simply jaw-dropping when you divide its payments of about $2.24 over the last year by its current share price. There is certainly volatility in both the stock and its payouts, but even if the distributions roll back, investors may still find an amazing stream of cash from this commodity dividend stock.
Dividend yield: 10.5%
7 commodity stocks to buy for great dividends:
— Alliance Resource Partners LP (ARLP)
— Barrick Gold Corp. (GOLD)
— Enterprise Products Partners LP (EPD)
— Exxon Mobil Corp. (XOM)
— 3M Co. (MMM)
— Sociedad Química y Minera de Chile SA (SQM)
— Vale SA (VALE)
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Update 09/22/22: This story was previously published at an earlier date and has been updated with new information.