Which Dividend Stocks Are Best for the Commodity Super-Cycle?

TL;DR

The best dividend stocks for the upcoming commodity super-cycle include coal miners and energy stocks, with average annual dividends reaching as high as 6%. Notably, Goldman Sachs projects significant price increases for oil, coal, and copper due to underinvestment and rising demand. Investors should approach dollar-cost averaging with caution, limiting exposure to any single stock to 5-10%.

Transcript

morning bowtie Nation Joseph Holger thank you for joining us for another one of these Monday Market updates uh coming to you at 9 00 a.m Monday mornings I've got a great topic for you this week you know even with the 15 Rebound in stocks looks like today we're going to open quite a bit lower but there are still some great deals out there to be had ... Read More

Key Insights

• ✋ Coal mining has experienced a surprising turnaround and is now paying the highest dividends in the market.
• 😮 The commodity super cycle, characterized by rising prices for commodities, is anticipated, particularly in oil, coal, and copper.
• 🌸 Dollar-cost averaging should be implemented with caution to reduce the risk of significant losses.
• 🥹 Clean energy stocks have faced challenges during the pandemic but hold long-term growth potential.

Questions & Answers

Q: Why could dividend stocks benefit from a commodity super-cycle?

The speaker says low commodity prices discouraged investment in new mines, oil fields, and metals production for almost a decade. That underinvestment has contributed to supply shortages just as another period of sharply rising commodity prices may begin.

Q: Why were coal miners the highest-paying industry in the cited chart?

Coal miners ranked first among the 12 highest-paying sectors and industries, with an average annual dividend of 6%. The speaker describes this as a major turnaround for an industry that had been near bankruptcy less than a decade earlier.

Q: Which commodities could rise during the anticipated super-cycle?

The discussion specifically identifies oil, coal, natural gas, and copper. Goldman Sachs is cited as expecting another commodity super-cycle in which commodity prices jump again.

Q: What oil prices did Goldman Sachs project?

The speaker says Goldman Sachs was discussing oil prices of $110, $120, or $140 per barrel the following year. These projections are presented as part of the bullish case for a commodity super-cycle.

Q: How did underinvestment create commodity supply shortages?

Major sell-offs pushed some commodity prices below production costs, discouraging producers from spending millions or billions of dollars on new capacity. Because exploring and developing a new oil field can take years, almost a decade, the lost investment cannot be replaced quickly.

Q: How much money should an investor put in a single stock, according to the speaker?

The speaker recommends keeping any single stock to no more than 5% to 10% of an investor’s money. The warning is based on the danger of repeatedly buying a falling stock until it represents 20% or 30% of the portfolio.

Q: Why does the speaker urge extreme caution with dollar-cost averaging?

Continually buying more shares as a stock falls can create an oversized position that causes severe losses if the company never recovers or enters bankruptcy. The speaker cites Peabody Energy, AT&T, General Electric, and BlackBerry/Research In Motion as cautionary examples.

Q: Why might current real estate dividend yields be misleading?

Some real estate and REIT stocks had fallen 20% to 30% during the year while their dividends had not been cut, mechanically raising their yields. The speaker still likes the sector and mentions Medical Properties West, STAG, and Realty Income, including Realty Income’s monthly dividend.

Summary & Key Takeaways

• Coal mining industry has made a significant turnaround, now paying the highest dividends in the market after years of underinvestment.

• Commodity super cycle is expected, with rising prices projected for oil, coal, copper, and natural gas.

• Dollar-cost averaging should be approached with caution, with investors advised to never put more than 5-10% of their money in a single stock.

• Sustainable growth potential exists in energy stocks and sectors like real estate and financials.