High Dividend Stocks 101

I just read an article in Kiplingers which outlines a bright future for coal in our energy future.  I believe they are largely correct.  To put it simply, we use too much energy and have too much coal to think that it won’t play a large part in our future as cheap oil runs out.  My problem is that I feel better with a high dividend payment along with a good story.

When I look at the major coal producers, (Peabody ( BTU),  Arch Coal (ACI) , Consol Energy (CNX)), I just can’t find a generous dividend.  Which got me thinking of Teco Energy (TE).  Teco Energy is an energy holding company with several divisions.  Tampa Electric is an electric utility operating in Florida.  Peoples Gas is a Florida provider of natural gas.  Teco Transport ships energy products.  Teco Guatemala produces and distributes energy in Guatemala.  And that leaves us with Teco Coal.

Teco Coal owns and operates low-sulfer coal mines and produces synthetic fuels.  They provide fuel to the steel industry and to other utilities, as well as using it themselves to produce electricity.  Their work with synthetic fuels qualifies them for federal tax credits.  According to their quarterly financials dated 10/30/08, Teco Coal is a major part of their revenues and net income.

All of which makes me think of Teco as a fair play on the growth of coal with a nice dividend to boot.  As I write this, Teco is trading for $12.54, with a dividend of over 6%.  That sounds good to me even without any kind of a boost from the growth of coal.

utilities coal, synthetic fuel, TE, Teco Coal, Teco Energy

Rio Tinto (RTP) operates worldwide to mine and process a wide variety of minerals.  One great page on the Rio Tinto site highlights this geographic diversity visually, and also emphasizes their strong presence in Australia and the U.S.  In my opinion both of these factors should offer some protection from political risks–including the risk of nationalization.

Rio Tinto’s  broad product line also offers some protection by means of diversification, but that hasn’t seemed to help much lately.  RTP is down about 75% from a year ago–and that’s one reason I’m looking.  Rio Tinto produces aluminum, borax, coal, copper, diamonds, gold, gypsum, iron ore, lead, molybdenum, nickel, potash, salt, silver, uranium, zinc, and more.  You have to expect many of these product lines to suffer greatly in a recession, but I believe that most of them will also rebound strongly when the recession ends.  On top of any normal bounce Rio Tinto might expect to benefit from at that point, I think it’s also worth considering any upside that might develop for at least three more reasons. 

First, I think we can safely predict that inflation is baked into the cake now.  Energy and raw materials are both natural hedges to some degree.  Second is the continued rise of China, India, et al.  For many reasons (too many to list here), I don’t beleive that story is over.  Finally, at the risk of sounding “pure doom and gloom” I wonder when the era of the U.S. dollar as the world’s reserve currency will end.  When that occurs–and I don’t claim to know when it will–I would expect a MAJOR drop in the dollar and a corresponding rise in the value of profits earned in foreign currencies.

As I write this Rio Tinto is priced at $99.40, with a yield of 5.5 %.  Granted, this is the season of “all dividends are suspect,” but all things considered, I think you can build a strong case for Rio Tinto to outperform most stocks in the mid to long term.  What do you think?

metals and mining coal, gold, iron ore, Rio Tinto, RTP, silver, uranium