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