Huntsman
• YTD performance: +46%
• Dividend yield: 2.1%
• Payout ratio: 21%
• Forward P/E: 10.8
Chemicals stocks have been overlooked by some investors in the last year, partially because they are unsexy cyclical plays akin to commodity stocks. But the sector has quietly been climbing lately, and Huntsman Corp. HUN +0.70% is the frontrunner by far.
Huntsman stock is outperforming peers like DuPont DD -0.40% and Dow Chemical DOW +0.44% so far in 2013, and is also outperforming the S&P 500 SPX -0.13% handily, too. But even after its big run it is by far the best bargain in chemicals with a forward price-to-earnings ratio of just 10.8 based on fiscal year 2014 forecasts. Compared that with forward P/Es of about 14 for DuPont. Not bad!
Income-oriented investors may not be thrilled about the 2.1% yield, which is significantly less than the 2.8% or so offered by 10-year Treasurys right now. However, keep in mind that Huntsman is paying out just 21% of 2014 earnings in dividends and in 2013 hiked its payout 25%. There are undoubtedly future dividend increases in store to enrich your payouts over the long term.
And on the growth front, Huntsman is a rare opportunity for investors to enter into a low-risk stock while it still has a bit of pep and before it gets too sleepy. Huntsman was hard hit by the Great Recession, failing to turn a profit in both 2009 and 2010. But since then, the company retooled with layoffs and cost-cutting and has been on the upswing. Its dividend increase this year was the first since it started paying shareholders in 2007, proving management’s confidence in the balance sheet, and Huntsman is forecasting a 50% rise in earnings next year if all goes as planned.
A restructured Huntsman will soar if the economy gets back on track and demand for its chemicals used in paints, electronics and the automotive industry picks up. But if not? Well, you can have comfort in the low valuation and rock-solid dividend payouts to rely on for stability.