Several companies are striving hard to manage their business and retain investors by providing an attractive dividend. These days, investors prefer a dividend stock over low interest rates. I’ll discuss three companies sporting a dividend yield of more than 6% and see how they are looking to generate sufficient profits in order to provide investors with a fat dividend.
Asset acquisition to improve returns
In order to expand upstream business margins, China Petroleum & Chemical Corp (ADR) (NYSE:SNP) entered into a joint venture with its parent company, Sinopec Group. It acquired Sinopec Group’s upstream assets worth $3 billion in Columbia, Kazakhstan, and Russia. As these places are rich in oil resources, overseas reserves will rise from 82.5 million barrels of oil equivalent, or mboe, to 330.2 mboe, and production will double to 58.7 mboe.
Due to strong financial flexibility, the company expects to acquire all of Sinopec Group’s upstream assets that will bolster its overseas portfolio and production. With this acquisition, China Petroleum & Chemical Corp (ADR) (NYSE:SNP) should witness an increase in its upstream business and is expected to generate revenue of $10 billion this year.
The change in domestic fuel prices has reduced the regulatory risk in China Petroleum & Chemical Corp (ADR) (NYSE:SNP)’s refining business, which has underperformed in the past two years. The Chinese government controls energy prices through the policymaker, National Development and Reform Commission, or NDRC. As NDRC previously adjusted fuel prices less frequently, companies faced massive losses. Therefore, NDRC recently reduced oil price adjustments from every 22 days to 10 days, and it eliminated the 4% cap on oil price adjustments. With this, China Petroleum & Chemical Corp (ADR) (NYSE:SNP)’s refining business margin is expected to improve.
The new pricing system should improve predictability of cash flows for China Petroleum & Chemical Corp (ADR) (NYSE:SNP). This could help the company generate positive free cash flow, or FCF, of $478 million this year compared to negative FCF of $15.2 billion in 2012, enabling the company to drive investors’ return higher from the current dividend yield of 6.20%.
Improving U.S. housing market should drive revenue
A substantial improvement in the U.S. housing market after the housing crisis has enhanced James Hardie Industries plc (ADR) (NYSE:JHX)’ core fiber cement business. Due to low mortgage rates, short supply, and an improving job market, there is an increase in demand for houses. The remodel, construction, and repairs markets in the U.S. is expected to increase, leading to sales growth in fiscal year 2014.
In May 2013, new houses in the U.S. increased 29% year-over-year to 914,000 units and are expected to continue to increase to 959,000 units this year and 1,162,000 units in 2014. The improving housing market is expected to increase James Hardie Industries plc (ADR) (NYSE:JHX)’s U.S. sales from $862 million in 2012 to $951 million this year, and $1 billion in 2014.
