Although the U.S. inflation rate has been slowing, the consumer price index is still up 6% year over year and is well above its historical average. It’s been a similar story for the producer price index.
Consumers and companies alike have been paying more for food, energy and other commodities. That has caused household and corporate expenses to rise, but it has also been a boon for companies that produce raw materials and can sell them at higher prices.
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“Three main components explain the rise in inflation since 2020: volatility of energy prices, backlogs of work orders for goods and services caused by supply chain issues due to COVID-19, and price changes in the auto-related industries,” the U.S. Bureau of Labor Statistics reports.
Even though the Federal Reserve has been hard at work raising interest rates to tamp down inflation, prices still remain elevated by historical standards. One way investors can combat the forces of inflation in their portfolios is to invest in commodities-producing companies.
These stocks benefit when the firms can sell their products at higher prices, creating an inflation buffer against other stocks. But well-established commodities companies can also pay dividends.
Their dividends might not be as stable as those from other types of companies because commodities businesses are tied to the ebbs and flows of economic cycles. However, the dividend income combined with their inflation-hedging qualities make these seven stocks worth considering.
As of early April 6, all of these stocks had dividend yields above the S&P 500 as a whole, and all but one had yields well in excess of the 10-year Treasury yield.
| Commodity stock | Dividend yield |
| BHP Group Ltd. (ticker: BHP) | 8.7% |
| Rio Tinto Group (RIO) | 13.6% |
| Vale SA (VALE) | 7.2% |
| Sociedad Química y Minera de Chile SA (SQM) | 10.2% |
| Alliance Resource Partners LP (ARLP) | 13.7% |
| Enterprise Products Partners LP (EPD) | 7.5% |
| Newmont Corp. (NEM) | 3.1% |
BHP Group Ltd. (BHP)
With a market capitalization of about $221 billion, BHP is the largest mining company in the world by stock market value. It mines base metals and coal, produces oil and natural gas, and supplies potash for agricultural production.
With that size and diversification comes the stability you might expect from a dividend-paying company. Tracing its roots back to 1851, the company has a long dividend track record.
One of its products, copper, is expected to be in high demand for the foreseeable future, as it is a key component in electric vehicles, which are seeing increased demand, and renewable energy production such as that from solar and wind farms.
Dividend yield: 8.7%
Rio Tinto Group (RIO)
This aluminum, copper and iron ore producer is the second-largest mining company in the world and would be a similar base metals play to BHP.
Both produce metals, such as copper, that are essential to the energy transition from fossil fuels to electricity generated from renewable sources.
Commodities producers aren’t completely immune to inflationary pressures. Rio Tinto’s net earnings in 2022 took a hit in part because of higher diesel prices for its trucks, trains and ships.
But at the same time, its aluminum business got a boost from higher prices for that metal, providing some cushion that other types of companies wouldn’t have to offset their energy usage.
Dividend yield: 13.6%
Vale SA (VALE)
Vale is the world’s biggest iron ore producer, and its product is key to making steel, a material that is crucial for economic growth, as it is used in buildings, infrastructure, vehicles and appliances.
The company also offers an illustration of how commodities-linked company dividends can be volatile.
Over the past year or so, its dividend yield has fallen from about 13% to 7.2%. The company links its dividend to the availability of cash, its loan and interest payments, capital investment programs, and earnings.
The company’s financial performance has fallen along with iron ore prices, which have dropped amid concerns about global demand.
Still, Vale’s current dividend yield is nothing to sneeze at and is well above the 10-year Treasury yield, which as of the market’s open on April 6 is about 3.3%.
Dividend yield: 7.2%
Sociedad Química y Minera de Chile SA (SQM)
Like copper, lithium is a key ingredient for the energy transition, as the silvery-white metal is used for batteries for electric vehicles and for grid-scale storage that is coupled with renewable energy production.
As one of the largest lithium miners in the world, the $21 billion SQM is a key player in the global race to produce more of the metal as decarbonization needs increase.
Although this international company’s dividend payments don’t follow the quarterly drumbeat of domestic stocks, its distributions still add up to a decent payout for investors.
Dividend yield: 10.2%
Alliance Resource Partners LP (ARLP)
Although oil and natural gas prices have been easing, they’re still relatively elevated, which benefits this energy commodities company.
Also important for Alliance is thermal coal, which is the type used for generating electricity. Prices for that commodity are also elevated despite falling recently.
In 2022, the company reported record full-year revenue of $2.4 billion, up more than 53% year over year. In January, it increased its quarterly cash distribution rate by 180% year over year.
Despite the energy transition, many power plants continue to run on coal. Alliance says that it has about 94% of its expected 2023 coal sales volumes committed and priced higher than 2022 levels.
Dividend yield: 13.7%
Enterprise Products Partners LP (EPD)
Another energy commodity company, 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 11.2% year to date as of April 5 and offers a decent dividend yield on top of that.
Dividend yield: 7.5%
Newmont Corp. (NEM)
Gold has a special role as a defense against inflation even though it’s not as widely used in industry as other commodities and isn’t necessarily a cyclical asset. Because the precious metal is primarily priced in U.S. dollars, declines in the value of the greenback make gold cheaper for those using other currencies, potentially boosting demand.
And because gold is a store of value, it competes against other relatively safe investments such as the U.S. dollar and Treasurys. As the Federal Reserve has been boosting interest rates to combat inflation, interest-bearing Treasurys have begun to look relatively more attractive than gold, which doesn’t pay any interest.
Still, the metal is up more than 11% this year as of April 5, which benefits Newmont, the biggest gold miner in the world by ounces produced. And even though gold doesn’t yield anything, Newmont does.
Although Newmont has the smallest dividend yield on this list, its role as a producer of a key inflation hedge makes it worth considering.
Dividend yield: 3.1%
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7 Commodity Stocks to Buy for Dividends, Inflation Hedging originally appeared on usnews.com
Update 04/06/23: This story was published at an earlier date and has been updated with new information.
