Why I’d ignore the Sirius Minerals share price and buy this FTSE 100 dividend stock

This FTSE 100 (INDEXFTSE: UKX) is a much safer long-term bet than Sirius Minerals (LON: SXX), or so says Royston Wild.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The protracted timescale between initial planning and maiden output at the North Yorks polyhilate project means I have long adopted a cautious stance on Sirius Minerals (LSE: SXX).

Of course, such uncertainty is part and parcel of the entire mining sector where a range of operational problems can put paid to future earnings projections. However, there are a couple of major reasons why I’m concerned about Sirius in particular.

Firstly, as I say, the initial fruits of its colossal project in the North of England are not expected until 2024. The lack of revenues from elsewhere means that the FTSE 250 digger is having to, well, dig deeper and deeper into its pockets to finance the project getting off the ground.

Cash resources fell to £468.5m as of December, from £665.3m a year earlier, as a result. And the company is to embark on stage 2 financing later in 2018. Shareholders have been assured by the direction of the mine-construction process so far but, should management’s budget and timescale targets begin to slip, then investor sentiment may well begin to sour, a situation that would also adversely impact the terms on which it can secure future financing, of course.

I am also concerned about Sirius’ lack of diversification. While many mining plays, such as BHP Billiton and Rio Tinto, have exposure to a variety of asset classes, Sirius has to hope that potash prices hold up well by the time its poly4 product hits the market in several years’ time. Given the raft of new potash supply that is set to hit the market by then, this may turn out to be a hard ask.

Several of my Foolish colleagues have argued in recent weeks that Sirius’ share price is a bargain right now. I can’t help but buy into their optimism somewhat, given its success to date in building its giant hole in the ground, as well as the early successes of its commercial teams that has seen it secure supply agreements worth more than 4m tonnes per annum.

I’m yet to be seduced by Sirius given its uncertain earnings outlook and fragile balance sheet, however, and reckon there is no shortage of stocks with safer investment prospects that can be snapped up today.

Footsie dividend star

St James’s Place (LSE: STJ) is one such share I reckon is worth checking out right now.

The FTSE 100 asset manager is going from strength to strength and, following the record amounts of new business it generated last year, it has kept up the pace into the start of 2018. Net inflows jumped 31% during January-March, to £2.6bn, and demand for its services looks set to keep growing as demand for financial services in the UK steadily increases.

Now City analysts expect St James’s Place to endure a 7% earnings fall this year, but its long-term outlook remains robust and it’s subsequently expected to come roaring back with an 18% bottom line improvement in 2019. Dividends are expected to keep climbing at a terrific rate, too, resulting in anticipated rewards of 48.7p and 56.7p per share for 2018 and 2019, respectively, projections that yield 4.2% and 4.9%.

A forward P/E ratio of 23.5 times may make it expensive on paper. Still, I reckon this valuation is undemanding given St James’s Place improving status in a fast-growing marketplace.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 51% in 2024, this FTSE 250 stock is flying!

This writer takes a look at one high-flying FTSE 250 share that still looks good value despite surging to an…

Read more »

Investing For Beginners

Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he's avoiding and what he's thinking of buying to try and protect his portfolio from…

Read more »

Bearded man writing on notepad in front of computer
US Stock

Call me crazy, but here’s why I’m eyeing up the CrowdStrike share price

Jon Smith notes the carnage caused by Friday's global outage, but flags up why he's thinks the CrowdStrike share price…

Read more »

Investing Articles

What do Hargreaves Lansdown results mean for the share price?

The Hargreaves Lansdown share price has surged in recent months on takeover expectations, but what will the recent results mean…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Newly minted S&P 500 stock CrowdStrike just crashed! Here’s why

Shares of S&P 500 firm CrowdStrike collapse as the company lies at the centre of a global IT outage. What…

Read more »

artificial intelligence investing algorithms
Investing Articles

Is Nvidia heading for the mother of all tech stock crashes?

Nvidia stock has soared, and the company briefly became the most valuable on the planet. But not everyone’s an AI…

Read more »

Dividend Shares

The BP share price is down 15% in 3 months. Time to buy?

In the space of just a few months, the BP share price has fallen by a double-digit percentage. Is this…

Read more »

Investing Articles

A 5.4% dividend bargain I’ll buy over Lloyds shares

Harvey Jones loves his Lloyds shares but now he's found a high-yielding FTSE 250 stock that may offer even more…

Read more »