After highlighting three dividend stocks with 8%-plus yields, I noticed a trend in some of the research. Commodity stocks, while providing some of the more volatile and unreliable dividends, often held the very best dividend potential.
It’s no secret to why commodity stock dividends can fluctuate. Prices of metals, crude oil and other basic materials can change wildly from quarter to quarter — and thus the revenue and profits of these companies then change in kind. It can be very disappointing to see a commodity stock slash its dividend significantly.
Of course, it also can be a windfall when that dividend yield soars because of a 20%, 50% or even 100% dividend increase.
Obviously, dividends are important these days because high-yield stocks offer a guaranteed return on your investment even as the market stays choppy. Even if shares gyrate up and down but really don’t go anywhere, the dividends from these high-yield investments can offer significant returns. If you’re looking to invest in dividend stocks as a hedge against volatility, you might want to steer clear of high-yield stocks that do not have sustainable dividends.
But if you are bullish on commodity stocks because of rampant inflation, or if you don’t mind the risk of a volatile dividend in the pursuit of bigger yields, take a look at these three commodity stocks with big yields:
Based on its last dividend payment of 70 cents per share, Southern Copper Corporation (NYSE:SCCO) has an impressive dividend yield of 7.9%. Of course, SCCO represents the volatile dividend history of so many commodity stocks — with payouts of less than five cents per share during the depths of the downturn just two short years ago.
However, an in-depth look at Southern Copper’s dividend history shows that the worst days are behind this company on that front. Payouts continue to be robust, and the past four dividends in particular show an impressive income stream.
As for the stock itself, as a copper giant it obviously is at the whims of this base metal and its price performance. But while copper took a dive in the middle of 2011, the long-term trend remains strongly upward. Even after rolling back from its highs, copper once again is approaching the $4 mark — up about four times over since its 2008 lows.
Revenue and earnings have been creeping up in kind during the past few years and the most recent quarters. Southern Copper has posted seven straight quarters of both year-over-year revenue growth and year-over-year earnings growth. Earnings per share have grown from $1.09 in fiscal 2009 to $1.83 in fiscal 2010 to a projection of as much as $2.80 this year, according to Thomson/First Call estimates. Revenue has surged from $3.7 billion in 2009 to $5.1 billion in 2010 to a projection of over $6.9 billion this year.
See a trend?
While SCCO indeed pays a volatile dividend, and while shares have been slammed 35% year-to-date, this pick could be a bargain buy as copper prices continue to stay strong. If and when the industrial recovery occurs, expect this pick to soar.