Importance of commodities in inflationary environment
One of the few bright spots in a turbulent 2022 has been the commodities sector, where a few major commodity stocks have managed to hold on or even turn a profit as the rest of Wall Street has lagged.
That is because the businesses that process and market those basic materials are in a terrific position in a setting where inflation is pushing up the cost of raw materials and tightening margins for end users.
Consider one of the following stocks that offers potential by playing raw materials and a stream of regular dividend payments on top of that if you’re interested in capitalizing on the upswing for commodities equities.
Alliance Resource Partners LP (ticker: ARLP)
Alliance, a $3 billion energy commodity manufacturer, was in trouble a few years ago due to its emphasis on thermal coal.
Its oil and gas businesses have benefited from increased energy costs, but more significantly, the high prices of these commodities combined with supply chain problems for electricity providers have led to an increase in demand for relatively unclean coal.
Alliance sales are expected to increase by 60% and another 10% in fiscal years 2022 and 2023, respectively. As profits rolled in, the corporation generously increased dividends for shareholders, and at the current rates, it provides almost four times the distribution of the typical S&P 500 component.
Barrick Gold Corp. (ticker: GOLD)
Barrick is a Canadian-based miner of precious metals, although it also has mines in Argentina and the Congo. Barrick’s gold reserves total 69 million ounces, or $115 billion in total value based on current ounce prices, according to its annual report.
Naturally, as gold prices have fallen significantly from their previous highs, shares of GOLD have also decreased this year. However, it’s possible that given the current inflationary pressures, the price of the precious metal may stabilize and rise once more.
Investors are attracted to add this top commodity company to their portfolios in the interim by a large dividend policy.
Enterprise Products Partners LP (ticker: EPD)
Enterprise, a $57 billion “midstream” firm that is another energy commodities investment, is less exposed to the fluctuation of oil and gas prices than its competitors. Because it sits between businesses that extract oil or gas from the ground and the wholesalers and refineries at the end of the supply chain, this is the case.
EPD stock is still up 24% year to date as of September 21 and provides an attractive dividend on top of that, despite the fact that this trustworthy model may not throw off the large margins of a small-cap explorer in the oil patch.
In order to maintain its leadership position and be able to sustain those payouts for many years to come, the company has budgeted $5.5 billion in expenditures through 2025.
3M Co. (ticker: MMM)
An industry leader in chemicals and materials with a $70 billion market cap, 3M has a brand portfolio with more than 6,000 patented goods in a variety of sectors.
A diversified family of clients ensures that no one industry or business line will ever make or break operations, and its specialized chemicals include polymers and coatings that are essential raw materials for many of its clients.
Income investors will also be delighted to hear that this icon of the materials industry has one of Wall Street’s most admirable payout records, with more than 60 consecutive years of dividend growth.
Exxon Mobil Corp. (ticker: XOM)
Oil and gas are among the first things that come to mind if you’re looking for commodities that have recently increased in price. Exxon is at the top of the list if you’re considering the top businesses in the sector.
Despite the fact that XOM faces long-term difficulties due to the reality of climate change, it is definitely enjoying a prosperous period as a result of increased oil and gas prices.
In addition to a large and consistent dividend, it has also returned a large portion of its recent windfall profits to shareholders, increasing its stock buyback program to $30 billion. This guarantees that this commodity stock can continue to provide for shareholders even if oil prices drift sideways for a while.
Conclusion
Inflationary pressures have created a challenging economic environment, but some commodity stocks have been able to capitalize on the situation. With rising costs of raw materials, companies that process and market commodities are in a great position to provide profits for investors. The top five commodity stocks that offer potential for investors seeking regular dividend payments include Alliance Resource Partners LP, Barrick Gold Corp., Enterprise Products Partners LP, 3M Co., and Exxon Mobil Corp. These companies have demonstrated an ability to weather market turbulence and provide consistent dividends to investors. As commodity prices continue to rise, these stocks are likely to continue performing well and providing reliable returns for shareholders.
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