The bearishness surrounding resource companies is creating an unappreciated benefit for investors: rising dividend yields. Even as the highly followed index, the S&P 500, continued its steady rise and recovered from the sell-off that began in the middle of April, key companies in the resource sector have yet to outperform the index.
Providing a yield of between 2.9% and 4.2%, these three companies are compelling income investments, but this idea requires that two things be met. First, the share price must not decline. Second, the balance sheet needs to be healthy enough to support the dividend. Will these companies meet these requirements?
| NAME | PRICE | AVG VOL | DIV/SH ($) | YIELD (%) | MKT CAP ($) |
|---|---|---|---|---|---|
| Barrick Gold | 18.55 | 15,650,500 | 0.8 | 4.2 | 18.48B |
| TransCanada | 48.34 | 576,654 | 1.8 | 3.8 | 34.13B |
| PotashCorp | 40.75 | 3,978,260 | 1.12 | 2.9 | 35.25B |
Data Source: Yahoo! Finance
How the mighty fall
Barrick Gold Corporation (USA) (NYSE:ABX) is the most compelling investing idea for value investors. Shares are down 55% from the 52-week high of $42.67. Since reaching a bottom recently, shares are clawing back, closing recently at $19.26. The Pascua-Lama project is the primary concern for investors. Costing $4.8 billion so far, the project needs to get back on track. A court forced Barrick Gold Corporation (USA) (NYSE:ABX) to suspend construction earlier last month.
Barrick Gold Corporation (USA) (NYSE:ABX) reported quarterly results that beat expectations by $0.03 per share. The company earned $0.92 per share on sales of $3.44 billion. During its conference call, the company acknowledged that it would even consider reducing project spending for Pascua-Lama, and that suspending construction was not out of the question.
Strong cash flow and access to the debt markets ensure that Barrick Gold Corporation (USA) (NYSE:ABX) will still pay dividends. CapEx was lowered by $500 million to between $5.2 billion and $5.7 billion. The company generated $1.1 billion in cash flow during the first quarter, producing 1.8 million ounces of gold. For 2013, the company forecasts production of 7-7.4 million ounces of gold.
Not everything about KeyStone is XL
TransCanada Corporation (USA) (NYSE:TRP) reported an increase in first-quarter profit, driven by the returning operation of the Bruce nuclear power plant. The company earned $0.52 per share in the quarter, missing estimates by $0.02 per share. Despite the negative coverage for KeyStone, the company believes the pipeline will be in operation by the second half of 2015. The project is budgeted at $5.3 billion, but TransCanada Corporation (USA) (NYSE:TRP) expects this estimate to rise.
The KeyStone XL approval process is now in its 67th month. TransCanada Corporation (USA) (NYSE:TRP) has a $25 billion portfolio of projects.
Fertilizers
Fertilizer producer Potash Corp./Saskatchewan (USA) (NYSE:POT) pays a dividend that yields 2.9%. The company beat forecasts in its Q1 report, earning $0.03 per share more than expected. Revenue was $2.1 billion while earnings were $0.63 per share. Sales volumes rose to 2.2 million metric tons, compensating for the Potash Corp./Saskatchewan (USA) (NYSE:POT) price decline.
Potash Corp./Saskatchewan (USA) (NYSE:POT)reported strong gross margin of 54% even though Potash Corp./Saskatchewan (USA) (NYSE:POT) prices dropped from $435 per ton to $363 per ton in the quarter. One negative for Potash Corp./Saskatchewan (USA) (NYSE:POT) was its lower guidance. The company expects earnings will be as low as $0.70 per share in the current quarter (Q2). Analysts expected Potash Corp./Saskatchewan (USA) (NYSE:POT) to earn $0.89 per share. Earnings will be $2.75 to $3.25 per share in 2013.
Foolish bottom line
A decline in gold prices will clearly be a negative for Barrick Gold. Barrick has the ability to respond to the decline by changing the cut-off grades and diverting production to the more profitable mines. The company has $2.3 billion in cash, and another $2 billion available in credit, should more capital expenditure be needed as markets improve.
Potash Corp./Saskatchewan (USA) (NYSE:POT) generated higher cash flow of $700 million and earnings (EBITDA) of $1 billion. The healthy results were helped by higher nitrogen prices compared to the previous year. Phosphate prices were lower, hurting sales, but gross margin remained stable.
TransCanada Corporation (USA) (NYSE:TRP) very recently delayed the expected start date for the Keystone XL project to a mid- to late 2015 start. Upside in shares of the company is limited, but the generous dividend makes it an attractive investment.
The article 3 Attractive Dividend Payers for Income Investors originally appeared on Fool.com and is written by Chris Lau.
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