Glencore is a FTSE 100 dividend share yielding 5% that’s absurdly cheap right now

The prospects for Glencore plc (LON: GLEN) appear to be more impressive than those of the FTSE 100 (INDEXFTSE: UKX).

| 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 outlook for Glencore (LSE: GLEN) continues to improve. The company has been able to put in place a refreshed strategy in the last few years which has strengthened its financial standing. It also has the potential to benefit from a tailwind in the resources sector, with world economic growth expected to remain high over the medium term.

Despite this, the stock has a relatively low valuation. This could make it more appealing than the FTSE 100, as well as a number of other shares that seem to now lack margins of safety. One example of such a stock released an investor update on Tuesday.

High valuation

The company in question is specialist filtration and environmental technologies company Porvair (LSE: PRV). It released a trading update that showed it has made good progress in the first nine months of the year. It has achieved revenue growth of 8%, with underlying revenue being 11% up on the same period of the previous year. The company’s order book remains healthy, while the acquired Keystone Filter operations are being successfully integrated.

The problem facing investors, though, is that the Porvair share price appears to be overvalued. It trades on a price-to-earnings (P/E) ratio of around 28, which suggests that it lacks a margin of safety. And with its bottom line due to rise by 3% this year and 5% next year, it seems to lack a clear catalyst to push its stock price higher. As such, it appears to be a stock to avoid at the present time on valuation grounds, even though it is performing well from a business perspective.

Low valuation

In contrast, the Glencore share price seems to offer excellent value for money. It has a P/E ratio of just 9, which suggests that it has a wide margin of safety. This could be useful if the world economic outlook deteriorates over the next few years. With tariffs being put in place by the US, China and EU, the prospect of a full-scale trade war remains high. This could hurt the performance of the FTSE 100, and cheaper stocks could therefore be less affected. And while there are regulatory risks facing the company, the stock market appears to have priced them in.

With Glencore having a dividend yield of over 5% at the present time from a payout that is covered 2.3 times by profit, it seems to have income investing potential. Although its business model may still be subject to the ups-and-downs of the resources industry, it has been able to reduce debt in the last few years. Alongside asset sales, this has strengthened the company and could provide it with greater financial resilience during a downturn.

Since the stock is due to post positive earnings growth over the next two years, now could be a good time to buy it. At a time when a number of shares both inside and outside of the FTSE 100 are trading on high valuations, Glencore seems to offer an impressive investment outlook.

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.

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK owns shares of Porvair. 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

Two white male workmen working on site at an oil rig
Investing Articles

Shell hints at UK exit: will the BP share price take a hit?

I’m checking the pulse of the BP share price after UK markets reeled recently at the mere thought of FTSE…

Read more »

Investing Articles

Why I’m confident Tesco shares can provide a reliable income for investors

This FTSE 100 stalwart generated £2bn of surplus cash last year. Roland Head thinks Tesco shares look like a solid…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£20,000 in savings? I’d buy 532 shares of this FTSE 100 stock to aim for a £10,100 second income

Stephen Wright thinks an unusually high dividend yield means Unilever shares could be a great opportunity for investors looking to…

Read more »

Investing Articles

Everyone’s talking about AI again! Which FTSE 100 shares can I buy for exposure?

Our writer highlights a number of FTSE 100 stocks that offer different ways of investing in the artificial intelligence revolution.

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

3 top US dividend stocks for value investors to consider in 2024

I’m searching far and wide to find the best dividend stocks that money can buy. Do the Americans have more…

Read more »

Investing Articles

1 FTSE dividend stock I’d put 100% of my money into for passive income!

If I could invest in just one stock to generate a regular passive income stream, I'd choose this FTSE 100…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Forecasts are down, but I see a bright future for FTSE 100 dividend stocks

Cash forecasts for UK dividend stocks are falling... time to panic! Actually, no. I reckon the future has never looked…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Down 13% in April, AIM stock YouGov now looks like a top-notch bargain

YouGov is an AIM stock that has fallen into potential bargain territory. Its vast quantity of data sets it up…

Read more »