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Is a safe 4% yield possible with commodities stocks? Yes, if we're careful

Commodities are one of the few sectors that can reasonably be called “cheap” these days. That means several things:

• The sector will be partially insulated from the coming equities bear market since it’s not catastrophically overvalued like Big Tech and other momentum stocks.

• Established commodities companies frequently pay nice dividends (thanks in part to their relatively low stock prices), so they generate a reasonable amount of cash for their owners.

• As their earnings increase, the best-run commodities companies will increase their dividends and repurchase shares, raising their yields.

So beginning with this post, I’ll create a “Dividend Stocks” subsection in our Portfolio (to be reflected in the Annual Update scheduled for January 1).

But This Isn’t As Easy As It Looks

The best dividend plays aren’t always obvious. Many big commodities companies have high — sometimes shockingly high — dividend yields. But frequently there are reasons for such high yields. So we can’t just grab the biggest dividends in this or any other sector. Here are two high-yielding commodities stocks that don’t work for us, and one that does: