Investing In Cement Industry Dividend Paying Stocks
By any standard the worldwide cement industry is enormous. Last year total revenues exceeded an eye popping $250 billion. Though a highly polluting and energy intensive business, the cement industry is important for virtually every economy on the planet. Besides for manufacturing and distributing cement, many companies in this industry also supply various construction materials, wallboard and paperboard. It’s no surprise that expanding economies are the biggest consumer of these materials as housing and other construction booms require huge quantities of this matter. As one might expect, China accounts for about half of the global demand for cement and related products.
While there are many cement companies that exist, only a handful offer dividend payments that one might consider adding to a dividend income portfolio. This quasi-industrial sector may be considered for added diversification beyond the standard dividend paying stocks many of us already invest in. Let’s examine a few of these dividend paying companies sorted by smallest yield to largest.
First up, Eagle Materials Inc. (EXP). EXP manufactures and distributes building products used in residential, industrial, commercial and infrastructure construction. Like many cement companies, EXP diversifies its offerings by operating in different segments that include cement, wallboard, paperboard and various aggregates. Currently yielding a tiny 0.40% with an equally small payout ratio of just 10.8%, EXP has a trailing PE of 41.53 making it quite expensive relative to the S&P but within range relative to peers. The recent housing recovery and building boom that has occurred over the last five years no doubt contributed to an overall demand for cement companies and their stock as share prices have definitely jumped in front of future earnings. Forward PE looks much more reasonable at only 19.22. Time will tell if an overall slowdown will be occurring in the building and housing sector which will no doubt lower stock prices, increase yield and bring PEs back down to Earth.
Next on our cement manufacturing list is Cementos Pacasmayo SAA (CPAC). Headquartered in Lima, Peru this company produces, distributes, and sells cement and cement-related materials primarily in northern Peru. Besides for cement production, CPAC is also a leader in the manufacturing of concrete blocks and cement bricks which are primarily used in construction in Peru. Currently yielding a more reasonable 1.70% with a low payout ratio of 24.6%, CPAC’s current dividend is considered safe by current cash flow standards with room for future increases as well. CPAC has a current PE of 20.18 placing it within a slightly higher range of the S&P but well below industry peers. This stock can provide a portfolio with an extra layer of diversification by focusing on an exclusive foreign market.
Higher up on the dividend yield ladder is CRH plc (CRH). Headquartered in Dublin, Ireland, CRH currently yields 3.13% with a relatively high payout ratio of 79.4%. Like the companies described before, CRH, besides for producing cement, also manufactures clay products, fabricated and tempered glass products and construction accessories making it quite diverse among its offerings. With an EPS of -0.55 CRH does offer a brighter earnings future with a forward PE of 16.4 placing well below industry peers and future S&P earnings.
Finally, another of the higher yielding cement stocks a dividend income portfolio might seek is James Hardie Industries plc (JHX). Also headquartered in Dublin, Ireland, JHX manufactures and sells fiber cement products primarily in the United States, Canada, Australia, New Zealand, the Philippines, and Europe. Fiber cement products are typically used for facades, columns and other decorative applications. JHX currently yields a very respectable 3.72%. With a current EPS of -0.16, JHX has a forward PE of 86.9 making it expensive based on current share price by any measure. Earnings definitely have to catch up to share price for CRH and JHX. Could this signal a slowing trend in the overall housing and building sector?
Clearly, the options for dividend investors in this space remain few. With complete dependence on the building and housing sectors, cement stocks may be too volatile in nature for many dividend income investors because of boom and bust cycles the industry experiences. But, when purchased at fair valuations, cement stocks can offer tremendous price appreciation coupled with dividend payments while you wait and ride a cyclical building and housing boom.
Are any cement stocks in your portfolio? Do you think a dividend income portfolio requires diversification into this sector. Please let me know below.
Disclosure: Long NONE
As a new investor, I’m concentrating on building my core positions. However, for someone looking to add some more diversification to an established portfolio, I could see these as being possibilities. To be honest, I haven’t even thought of this particular sector for investing, but it shows there are many ways to expand and diversify a portfolio. Thank you for the read.
Special Agent Dividend recently posted…Update: New Buys, TSP, Dividend
Hi SAD,
I agree with your assessment regarding building core positions first. As a dividend income investor, this is what I have done with my own portfolio. Of course, as you mentioned, sometimes after a core position is built you might want to look at other dividend paying sectors or industries as well. The cement industry is massive to say the least and one cannot simply dismiss the dividend payers the area provides. Thanks for stopping by and commenting.
DH,
Interesting. I’ve never thought about the cement industry or the building blocks of our physical infrastructure. With the stocks mentioned above, looks as thought it may be hard to invest into them with the lack of dividend history behind them. I do think there is plenty of building and physical updates going on in the world, but I think I would have to read more financial filings to grasp how their revenues are being generated and how the management of their expenses would be during the cyclical patterns. Interesting take and viewpoint for sure. I’m pumped you looked into this industry.
-Lanny
Dividend Diplomats recently posted…Endless Liabilities of Owning a Car
Hi DD,
Thanks for stopping by and commenting. Anytime you have an industry that commands $250 billion in sales you have to at least take a look and see if any companies that are in that sector can make good dividend investments. While I agree that the choices, in terms of dividend picks, are slim, there are a couple companies mentioned that might warrant further research. I know that CX has been a popular cement play in recent years but unfortunately they do not pay a dividend which is why they were not mentioned in this article.
Interesting research. For an industry that large I would think there would be more players with dividends. Maybe it is to volatile of an industry to be paying divs.
Regards,
DFG
Dividend Family Guy recently posted…August 2014 Budget
Hi DFG,
Exactly my thoughts. Any industry that commands such a large amount in sales should have more players that pay dividends but unfortunately I could not find many pure play cement companies that do. There are literally hundreds and hundreds of these cement companies all over the world but most are private or do not pay dividends. Perhaps, as you said, a cyclical industry such as cement cannot provide steady cash flow to be able to pay steady, let alone rising dividends. Thanks for stopping by and commenting.
DivHut,
Very interesting article. In my work we use concrete a lot, though usually just Portland Cement mixed on site for patching of holes or work done when messing in the environmental field. However, occasionally I am involved in a job or two where there is significant usage. I am not surprised there are limited large players, most concrete plants draw from local aggregate mines and distribute their product locally as well. Still there is definitely a place, and it would seem the large companies are more in the per-fabricated or decorative markets.
Overall, I see maybe 2 that show some promise out of those 4, but like you said most are currently overvalued.
– Gremlin
Hi DG,
While writing this article I learned a bit more about the cement industry. For such a large sector, in terms of annual sales, I was surprised to learn, as you mentioned, that most companies are local business serving a small radius of clients. It was a challenge to find dividend payers in this space despite a market size of $250 billion. Looking at the current dividend payers leaves us with a mixed bag of some low yield and high valued stocks. I would like to see a longer dividend history among these payers as well, as distribution consistency is something I look for when deciding to make a stock purchase. Thank you for sharing your insight into this sector and commenting about it.
Haven’t heard anything about these companies, need to check them out. Thanks for sharing!
cheers
AnhaInvesting recently posted…Dividend Income: September & Other
Hi AnhaInvesting,
Happy to share new ideas and stocks with my readers. I always like to write about different dividend paying companies from different sectors to highlight potential new investment opportunities. We always read about the popular stocks such as MCD, TGT, AFL, GIS, KO, PEP, etc. but rarely about other companies such as the ones mentioned in this article.
The cement industry is very cyclical in nature and may not have many solid long term dividend payers we are accustomed to but it is an industry that is massive with over $250 billion in annual sales and I felt should get some attention. Thanks for stopping by and commenting.