After a stellar performance from the S&P/ASX200 Index (ASX: XJO) (^AXJO) in 2013, many have doubted the market can repeat its performance in 2014. I agree, it’ll be tough.
However one sector – which makes up a large portion of the market – has underperformed in recent years, so the market could well go higher if it picks up. It is the resources sector.
Australia’s biggest company, BHP Billiton Limited (ASX: BHP), is one stock which will have to perform well if the market trends higher. But it seems increasingly likely that it will outperform in the short term because it continues to give investors what they want. It is growing production of its 4 ‘pillar’ commodities including copper, coal, petroleum and iron ore. As for shareholder returns, cost cutting and efficiency improvements continue to allow the miner to pay a solid 3.4% fully franked dividend.
Fellow resources heavyweight Rio Tinto Limited (ASX: RIO) has gone in a different direction to its counterpart, almost solely focusing on growing its most lucrative commodity – iron ore. It too has an expanding production profile – expected to increase by up to 25% before 2018 – and it has focused on keeping costs and debt down in a bid to allow greater returns to shareholders. It recently announced an impressive annual result and surprised the market with a big dividend increase. It now yields 3.64% fully franked.
Another company also expected to play a big part in the local bourse’s gains is Santos Limited (ASX: STO). While it failed to impress investors with its annual report released earlier this week, its production is expected to grow from a current 51 million barrels of oil equivalent to over 80 million by 2020 as its major projects come online. As pointed out by Motley Fool writer, Regan Pearson, it has enough gas to last 27 years at current production levels.
Another gas producer, Senex Energy Ltd (ASX: SXY), has a similar kind of growth in mind. It recently notched-up a record first-half performance with $31.8 million in underlying profit. Importantly for the company, it has no debt and uses strategic partnerships to make the transition to greater production less troublesome for management and shareholders. Production is expected to increase in the second half of the year following a successful drilling campaign undertaken in 2013.
Northern Star Resources Ltd (ASX: NST) is a gold miner with low per-ounce costs and strong balance sheets. It has used these to its advantage. Snapping up projects in Western Australia when the gold price sank in 2013. Investors have realised its potential to weather the storm of low gold spot prices and bought-up the stock. Nevertheless this miner remains an exciting prospect and it pays a good dividend.
The resources sector looks likely to outperform in 2014, after the demand for high dividends rallied the finance and retail sectors in 2013. Keep an eye on these stocks because they’re at the top of the pecking order in their respective commodities and look likely to reward shareholders in the short to medium term.
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.