The Best Stock for a Parched State

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Farmers in Texas hope that the drought of 2011 was a one-time event. Crops withered and died, and mud turned to dirt. Chemical giant DuPont ( DD) may have just the solution to the prospect of on-and-off droughts. Its AquaMax drought-tolerant corn seed has proven very resilient in the most stressful environments, and farmers are expected to plant it on more than 1.5 million acres in 2012, up from just 100,000 acres this year.

It's that bright outlook for Dupont's Pioneer seed division that has Merrill Lynch calling this stock a top pick for the chemical sector with a $61 price target, roughly 30% ahead of current levels. Merrill concedes that global demand for industrial chemicals, coatings and materials division (which accounts for roughly half of sales) is likely to be just flat in 2012, but the more dynamic agricultural and biosciences divisions merit a more robust multiple. Merrill thinks that "investors are well compensated for an uncertain demand backdrop at 10.5x our 2012 EPS estimate."

What can investors expect in terms of dividends? Well, the payout has been flat at $1.64 a share in 2008, 2009, 2010 and 2011. Yet a dividend hike may be on the way. That's because profits have been rising at a steady pace, from $3.31 a share in 2010, to around $4 a share this year, and a projected $4.35 in 2012. Regardless, DuPont is one of the top-yielding chemicals stocks.

A hike in the payout, which would move the yield up above the current 3.4%, might be another reason to bet on this Dow Dog.

DuPont, which shows up on a recent list of 10 High-Quality Stocks for 2012, was also featured in " 5 Big Stocks to Trade for Gains Into 2012."

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