By David Sterman
Investors have been wisely diversifying their portfolios to provide exposure to more than just U.S. stocks. Whether it's emerging markets, real estate or gold bullion, a broad-based approach provides for a better night's sleep.
Yet it's fair to ask: do commodities also have a place in your portfolio? After all, they seem to rise and fall with alacrity, and investors often only notice them after they've made sharp gains or plunges. Truth is, we have no crystal ball that tells us how this group will fare in 2013. We can look at the supply and demand backdrop for various commodities, but much hinges on the health of global economies.
Yet if you look beyond 2013, then you can be assured that each commodity will have its day in the sun. The key to is to buy various commodities (or the stocks that represent them) when they are out of favor, but you must also be nimble enough to sell them when they have posted major gains.
Here's what we do know: there are a number of dominant commodity producers currently sporting impressive dividend yields. And such high yields can support an underlying stock price if the going gets tough.
Here are seven commodity-focused stocks with currently impressive dividend yields.
One of the intriguing aspects of super high-yielders is trying to identify what effect a future dividend cut may have on the stock. In mid-November, I took a look
at NuStar Energy
) and noted that if the dividend wasn't going to be as sharply cut as some had feared, then shares might post a quick rebound.
Since then, shares have rebounded more than 20%, "driven by a relief rally related to an allaying of concerns around the sustainability of NS' current distribution," noted analysts at Merrill Lynch. In effect, investors have captured a solid dividend yield and some quick capital appreciation.
Risks to Consider: A sharply weaker global economy in 2013 would negatively affect commodity prices -- and these firms' payouts.
Action to Take: The best way to play these super high-yielders is to take the long view. The high yields suggest that near-term business conditions remain tough. But if history is any guide, then these stocks will zoom back into favor when the commodity cycle turns. By then of course, the resulting upward move in the share prices means you'll no longer be able to lock in such attractive yields.
David Sterman does not personally hold positions in any securities mentioned in this article.
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