The chemical industry continues its positive run this year on the back of healthy demand across automotive and construction end-markets, a recovery in demand for chemicals in the energy market supported by a rebound in oil prices and an upturn in the world economy.
Moreover, President Trump’s business-friendly tax reform contributed to the impressive earnings performance of the U.S. chemical companies in the first quarter. It is likely to remain a major tailwind as the reforms are expected to boost their bottom line, improve cash flow and incentivize capital investments.
How Things Are Shaping Up in the Industry?
Strong Demand in Major Markets: Chemical makers continue to see strong demand from construction and automotive sectors – major chemical end-use markets. The underlying trends in the housing space remain healthy, backed by strong economic growth, steady buyer demand, declining mortgage rates, high homebuilders’ confidence and strong job market scenario.
The automotive sector also continues its good run amid certain challenges, supported by an improving job market, rising personal income, favorable credit conditions, improved consumer confidence and impressive vehicle launches.
A Rebound in Energy: Improving fundamentals in the energy space — a key market for chemicals — has been a major tailwind for the chemical industry. A recovery in crude oil prices has led to an increase in demand for chemicals in the energy market and a favorable pricing environment for chemical products. This is because chemical and oil prices move in tandem.
Higher Production to Drive Growth in U.S. Chemical: The U.S. chemical industry is expected to witness strong gains in the production of agricultural chemicals, consumer products, coatings and bulk petrochemicals this year, per the industry trade group — American Chemistry Council (ACC). The trade group expects a strong growth in several chemical sectors in including fertilizers, petrochemicals, crop protection, coatings and consumer products. The ACC envisions national chemical production (excluding pharmaceuticals) to rise 3.4% in 2018.
Moreover, the group expects continued expansion in production across the United States this year, with the Gulf Coast region witnessing strongest gains. Moreover, growth in output is expected to be driven by higher demand across light vehicles and housing markets as well as upturn in U.S. manufacturing. While the automotive sector is expected to remain at high levels, steady recovery in housing is likely to continue in 2018.
Favorable Shale Gas Economics: The United States continues to be an attractive destination for chemical investment. The American chemical industry has the competitive advantage of accessing abundant supplies of natural gas liquids (NGLs) and shale gas. Economics of shale gas is driving strong capital investment in new chemical projects, which is driving growth in the U.S. chemical space.
Improving Export Markets: The ACC expects strong export markets to bolster the U.S. chemical industry in 2018. It expects two-way trade between the United States and foreign partners to expand 6.2% year over year and reach $241 billion this year on the back of strong demand from overseas markets and domestic manufacturers downstream.
How Dividend Paying Stocks Can Enrich Your Portfolio
Stocks with solid dividend yield and attractive growth prospects offer excellent choices for investors seeking to create a portfolio that performs well in a growing market and offers downside protection.
Consistent dividend payouts underscore a company’s financial strength and stability. Given the positive developments in the chemical space, it would be a prudent move for investors to add some top-quality dividend stocks in their portfolio.
We have employed the Zacks Stocks Screener to find four top chemical companies that offer a decent dividend yield and sport a favorable Zacks Rank.
Methanex Corporation (NASDAQ:MEOH)
This Canada-based chemical company is the world’s largest producer and supplier of methanol. The stock currently sports a Zacks Rank #1 and offers dividend yield of 1.9%. It has expected long-term earnings per share growth rate of 15%.
Eastman Chemical Company (NYSE:EMN)
This Zacks Rank #2 (Buy) stock is a global chemical producer boasting a broad portfolio of chemical, plastic and fiber products. The stock has a dividend yield of 2.3% and expected long-term earnings per share growth rate of 9.4%.
Celanese Corporation (NYSE:CE)
Irving, TX-based Celanese carries a Zacks Rank #2 and offers dividend yield of 1.9%. It has long-term expected EPS growth rate of 8.9%.
LyondellBasell Industries (NYSE:LYB)
This Netherlands-based company is among the leading plastics, chemical and refining companies globally. The stock currently carries a Zacks Rank #2 and offers dividend yield of 3.8%. It has long-term expected EPS growth rate of 9%.
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