By now, you’ve probably heard about the biggest story in energy. New drilling technologies in natural gas exploration and production have opened the floodgates to new supplies, creating all kinds of possibilities for consumers and investors. [See this article for an example of what I’m talking about.] 

But this natural gas revolution has so far been a mixed blessing for producers, as natural gas prices have gone into a tail spin. From highs of $8 per million Btu (British thermal units) four years ago, natural gas prices at the wellhead have plummeted to a recent $2 per million Btu, the lowest point in more than a decade.

As expected, major natural gas producers are feeling the pain. Well-known natural gas players such as Chesapeake Energy (NYSE: CHK), for instance, have lost 50% of their share price in the past 12 months alone (although, to be fair, some of that has to do with bad press regarding revelations of some of management’s practices). 

#-ad_banner-#The good news is that in the investment world, for every loser there is also a winner. So you should be thinking about buying shares of the dozens of other stocks that can profit from unusually-low natural gas prices. 

Among the top beneficiaries of this trend are chemical and fertilizer producers, which are now seeing their operating costs drop as a result of the lower feedstock prices and energy costs, since many electric utilities are replacing their aging coal-burning units with new gas-fired plants.  

If you believe that natural gas will remain at historically low prices for the near future like I do, then you should look into these three high dividend-paying stocks, since they’re well-positioned to reap the benefits of low-cost natural gas. 

1. Dow Chemical (NYSE: DOW)
Yield: 4%

Dow is a diversified chemical maker that generates $60 billion in annual sales and operates worldwide. The company makes and supplies raw materials to the specialty chemical, advanced materials, electronics, energy, agriculture and plastics industries. Natural gas accounts for 20% of Dow’s operating costs, so falling gas prices are likely to drive significant margin expansion and profit growth for the company.

Dow’s earnings per share (EPS) rose 29% in 2011 to $2.54 compared with the $1.97 seen in 2010. The gain came as a result of the company’s feedstock advantage, record sales in emerging markets and a $2.3 billion reduction in debt. Although restructuring charges and weakness in Europe will possibly limit Dow’s 2012 earnings growth to single digits, analysts expect the company to post 29% growth in 2013 and deliver annual growth averaging at least 11% for the next five years. 

Dow cut its dividend for the first time ever, by two-thirds during the recession in 2009, but began increasing payout again in 2010. The company raised its dividend 67% last year and another 28% this year. The new forward annual dividend of $1.28 yields roughly 4%. Dow produces robust operating cash flow ($4 billion in the past 12 months) and keeps payout low (less than 40% of fiscal 2011earnings), so there should be plenty of room for additional dividend growth. 

2. Terra Nitrogen Co. LP (NYSE: TNH)
Yield: 8%

Low natural gas prices are also welcome news for nitrogen-based fertilizer producer Terra Nitrogen, which makes fertilizer by converting natural gas into ammonia and adding urea. Terra’s fertilizer is used primarily by corn farmers, who got an early start to planting this year because of the mild winter. This has resulted in tight fertilizer supplies and rising prices. 

Lower feedstock costs made Terra very profitable in 2011. The company’s income more than doubled to $508 million compared with the previous year, and EPS soared to $15.33 from $8.01. Distributions per share nearly tripled from $5.01 in 2010 to $13.91 in 2011, and Terra has declared a first-quarter 2012 distribution of $4.53 ($18.12 annualized). The company has no long-term debt, a remarkable 100% 12-month return on assets (ROA) and cash flow that exceeds $29 a share.   

In the past five years, Terra has delivered 17% yearly growth in distributions and yields averaging 8.5%. Reflecting the company’s strong near-term prospects, the share price is up nearly 60% in the past 12 months, but the yield is still relatively rich at 8%. 

3. Nucor Corp. (NYSE: NUE)
Yield: 4%

Nucor is an $11.3 billion company and one of the largest U.S. steel producers and recyclers. The company plans to increase profits by using natural gas as an energy source instead of coal or oil. It has also cited low natural gas prices as a key driver behind its move to build a new steel plant in Louisiana, which is expected to start operations in mid-2013. 

Nucor should also benefit from higher steel shipments, which rose 13% in the first quarter of 2012 as a result of stronger-than-expected automotive sales and solid demand for farm equipment. The company is also growing by acquisition. It just announced plans to acquire Skyline Steel LLC from ArcelorMittal (NYSE: MT) for $605 million. 

Analysts say Nucor can produce 59% earnings growth next year and 9% yearly growth for the next five years. 

Nucor has been paying dividends for 39 years. The company cut dividends by 40% during the recession, but has increased payments by 4% since 2009. The latest increase was a 1-cent hike last September to a $1.46 annualized rate, yielding 4.1%. The payout ratio is a bit high at 61%, but Nucor has consistently strong cash flow ($1.2 billion in the past 12 months) and cash on hand exceeding $2.4 billion to support the dividend through good times and bad.  

Risks to Consider: All three of these stocks are extremely cyclical. Dow and Nucor could be hurt if Europe falls into a recession. Terra’s distributions are affected by corn production and prices.

Action to Take –> My top pick overall is Terra Nitrogen because of its generous distributions as well as forecasts for steadily-increasing corn consumption and prices through 2019 by the U.S. Department of Agriculture. Dow is my top choice for investors who desire dividend growth, because of the company’s commitment to rapidly restoring its dividend to pre-recession levels. For investors who want safety, Nucor rates highly since more than 55% of the company’s steel production is contracted on a long-term basis, which helps deliver predictable revenue and profits.