Dividend payers deserve a berth in any long-term stock portfolio. But seemingly attractive dividend yields are not always as fetching as they may appear. Let's see which companies in the stone, clay, glass, and concrete industry offer the most promising dividends.

Yields and growth rates and payout ratios, oh my!
Before we get to those companies, though, you should understand just why you'd want to own dividend payers. These stocks can contribute a huge chunk of growth to your portfolio in good times, and bolster it during market downturns.

As my colleague Matt Koppenheffer has noted: "Between 2000 and 2009, the average dividend-adjusted return on stocks with market caps above $5 billion and a trailing yield of 2.5% or better was a whopping 114%. Compare that to a 19% drop for the S&P 500."

When hunting for promising dividend payers, unsophisticated investors will often just look for the highest yields they can find. While these stocks will indeed pay out the most, the yield figures apply only for the current year. Extremely steep dividend yields can be precarious, and even solid ones are vulnerable to dividend cuts.

When evaluating a company's attractiveness in terms of its dividend, it's important to examine at least three factors:

  1. The current yield
  2. The dividend growth
  3. The payout ratio

If a company has a middling dividend yield, but a history of increasing its payment substantially from year to year, it deserves extra consideration. A $3 dividend can become $7.80 in 10 years, if it grows at 10% annually. (It will top $20 after 20 years.) Thus, a 3% yield today may be more attractive than a 4% one, if the 3% company is rapidly increasing that dividend.

Next, consider the company's payout ratio, which reflects what percentage of income the company is spending on its dividend. In general, the lower the number, the better. A low payout ratio means there's plenty of room for generous dividend increases. It also means that much of the company's income remains in its hands, giving it a lot of flexibility. That money can fund the business's expansion, pay off debt, buy back shares, or even buy other companies. A steep payout ratio reflects little flexibility for the company, less room for dividend growth, and a stronger chance that if the company falls on hard times, it will have to reduce its dividend.

Peering into stone, clay, glass, and concrete
Below, I've compiled some of the major dividend-paying players in the stone, clay, glass, and concrete industry (and a few smaller outfits), ranked according to their dividend yields:

Company

Recent Yield

5-Year Avg. Annual Div. Growth Rate

Payout Ratio

Add to Watchlist

CRH (NYSE: CRH) 5.7% 34.2% 97% Add
Apogee Enterprises (Nasdaq: APOG) 2.8% 1.2% NM Add
Ameron International (NYSE: AMN) 1.9% 35.0% 95% Add
Texas Industries (NYSE: TXI) 0.8% 0.0% NM Add
Carbo Ceramics (NYSE: CRR) 0.6% 14.6% 20% Add

Data: Motley Fool CAPS.
NM = Not meaningful because of negative earnings.

If you focus on dividend yield alone, you might end up with CRH, but it's not necessarily your best bet, with its steep payout ratio. Apogee's yield is attractive, but it's not growing very quickly.

Instead, let's focus on the dividend growth rate first, where CRH and Ameron International lead the way. Their growth rates are so steep, though, that they will be hard to maintain for long. And the fact that their payout ratios are close to 100% is also a red flag.

You may also notice that some major players in the industry, such as Cemex (NYSE: CX) and USG (NYSE: USG), aren't on the list. While smaller, fast-growing companies often prefer to plow any excess cash into further growth, rather than pay it out to shareholders, some larger enterprises also eschew dividends, putting that money to other use or simply not having sufficient confidence in the stability of their earnings.

Just right
As I see it, none of the companies sports a very attractive combination of dividend traits. Still, CRH and Ameron are worth considering, as they offer some solid income now and a chance of strong dividend growth in the future -- at least for a while. You might also find even more attractive dividends elsewhere, in sectors such as packaged consumer goods or oil refining.

Of course, as with all stocks, you'll want to look into more than just a company's dividend situation before making a purchase decision. Still, these stocks' compelling dividends make them great places to start your search, particularly if you're excited by the prospects for this industry.

Do your portfolio a favor. Don't ignore the growth you can gain from powerful dividend payers.

To get more ideas for great dividend-paying stocks, read about "13 High-Yielding Stocks to Buy Today."

Longtime Fool contributor Selena Maranjian owns shares of Cemex, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. Motley Fool newsletter services have recommended buying shares of USG. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.