Build Diversity: Part 7 Materials & Utilities

30 Mar 2014 00:47
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All stock information will be culled from David Fish’s “Dividend Champions List” at which provides a list of all stocks that have continually grown their annual dividend payouts for 5 years or more in a row.

Welcome to Part 7 of our “Build Diversity” series. Today we will be looking at the Materials and Utility sectors.

To start with a list we will use basic search criteria of:
* min div yield near 3% or greater
* payout ratio near 65% or less
* debt to equity ratio less than 1

Company Symbol Yrs of Div Growth Div Yield Payout Ratio TTM P/E Debt/Equity
BHP Billiton Ltd. BHP 11 3.43% 42.3% 12.35 0.50
BHP Billiton plc BBL 11 3.68% 42.3% 11.50 0.50
Compass Minerals International CMP 9 2.81% 61.7% 21.94 0.86
Sonoco Products Co. SON 31 2.95% 61.7% 20.89 0.70
Conn. Water Service CTWS 44 3.01% 59.6% 19.78 0.92
MGE Energy Inc. MGEE 38 2.82% 52.8% 18.73 0.66
Northeast Utilities NU 16 3.53% 63.1% 17.85 0.99

The search yielded 7 stocks. For Material companies SON is the elder of the group with 31 years of continuous dividend growth. BHP & BBL offer the highest dividend yield and lowest P/E ratios but they also operate in volatile iron ore markets where spot prices have dramatic swings up and down.

For Utility companies CTWS & MGEE offer a long history of continuous dividend growth. What is most impressive of all three is that we actually found utility companies with low debt to equity ratios. One of the downsides of establishing a utility is the large infrastructure required for creating and/or delivering of utility services. Creating such a structure requires an immense amount of cash so most have a debt/equity ratio above 1.

Company Symbol 1 Yr DGR 3 Yr DGR 5 Yr DGR 10 Yr DGR
BHP Billiton Ltd. BHP 3.6% 10.1% 10.6% 22.3%
BHP Billiton plc BBL 3.6% 10.1% 10.6% 30.7%
Compass Minerals International CMP 10.1% 11.8% 10.2%
Sonoco Products Co. SON 3.4% 3.5% 2.8% 3.9%
Conn. Water Service CTWS 2.1% 1.9% 2.2% 1.7%
MGE Energy Inc. MGEE 3.2% 2.6% 2.3% 1.8%
Northeast Utilities NU 11.1% 12.8% 12.2% 9.8%

Looking at dividend growth SON shows some pretty low growth but the trade-off is its long dividend growth history. On the utilities front it is not surprising to see low growth rates as these are low growth heavily regulated industries and typically make good defensive plays for your portfolio. It was interesting to find NU with a high growth rate and one would have to question how sustainable it is.

Our quick search has yielded 7 potentially attractive examples to add to your portfolio. Like any investment you should research further before purchasing any equity as this report is nothing more than a result of some surface level values and ratios.

BHP Billiton Ltd. (BHP): BHP Billiton Limited, together with its subsidiaries, operates as a diversified natural resources company worldwide. The company explores for, develops, produces, and markets petroleum, potash, aluminium, alumina, nickel, and manganese ore and alloys; and produces and exports seaborne metallurgical coal and thermal coal. In addition, the company explores for and produces copper, silver, lead, uranium, zinc, and iron ore.

BHP Billiton plc (BBL): BHP Billiton Plc, together with its subsidiaries, operates as a diversified natural resources company worldwide. The company is engaged in the exploration, development, and production of oil and gas; mining of metallurgical coal, thermal coal, copper, silver, lead, zinc, molybdenum, uranium, iron ore, and gold; mining and refining of bauxite into alumina, and smelting of alumina into aluminum metal; and mining and production of nickel products, manganese metal and alloys, as well as development of potash.

Compass Minerals International (CMP): Compass Minerals International, Inc., through its subsidiaries, produces and markets inorganic mineral products primarily in North America and the United Kingdom. It operates in two segments: Salt and Specialty Fertilizer.

Sonoco Products Co. (SON): Sonoco Products Company manufactures and sells industrial and consumer packaging products in the United States, Europe, and Canada. The company operates in four segments: Consumer Packaging, Paper and Industrial Converted Products, Display and Packaging, and Protective Solutions.

Conn. Water Service (CTWS): Connecticut Water Service, Inc., through its subsidiaries, operates as a regulated water company. The company operates in three segments: Water Activities, Real Estate Transactions, and Services and Rentals.

MGE Energy Inc. (MGEE): MGE Energy, Inc., through its subsidiaries, operates as a public utility holding company in Wisconsin. The company operates in 4 segments; Regulated Electric Utility, Regulated Gas Utility, Non-regulated Energy Operations, and Transmission Investments.

Northeast Utilities (NU): Northeast Utilities, a public utility company, through its subsidiaries, is engaged in the energy delivery business. The company is involved in generation, transmission, and distribution of electricity; and distribution of natural gas.

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