This FTSE 100 dividend growth stock’s fallen 30% in 2019! Is it too cheap to miss?

Royston Wild picks out a FTSE 100 dividend stock that could have a very bright future. Should you buy it for your Stocks & Shares ISA?

| 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.

For those investors seeking dividend growth stocks at great value, the FTSE 100 commodities play Fresnillo (LSE: FRES) is worthy of some serious attention, in my book.

This silver and gold miner has fallen 31% in value since the start of January, a reflection of the huge operational problems that have hammered group production of late and caused levels to miss estimates. These are not just trifling issues, either. In the third quarter, for example, lower ore grades at its Saucito and San Julián mines caused silver output to drop 7.9% from the prior quarter, to 13.3m ounces.

These problems forced the business to cut its full-year production estimates earlier in December. It now expects total silver production to come in at 55m ounces and gold output at 885,000 ounces in 2019, down significantly from the record of 61.8m silver ounces last year and the 923,000 ounces of gold.

Production poised to boom

Fresnillo might be on the defensive right now, but I think the robust outlook for precious metals prices next year means that Fresnillo could prove to be a shrewd contrarian buy for 2020. City analysts expect perky silver and gold values to drive profits at the Mexican digger 37% higher next year.

Such a projection leaves it trading on a dirt-cheap forward price-to-earnings growth (PEG) ratio of 0.6 times and could provide a base for some stratospheric share price gains should the business demonstrate that attempts to supercharge production are starting to bear fruit.

The FTSE 100 business is expected to endure another year of production reversals in 2020, with silver output of 54m ounces and gold output of 857,000 currently anticipated. However, while gold production is expected to keep falling in 2021 and 2022, the amount of silver that it is anticipating pulling out of the ground is expected to balloon (to 66m ounces in 2021 and 71m ounces in the following year) as operational improvements at several of its assets, including those at the flagship Fresnillo mine, come to pass.

Dividends on the march!

One final, but important, thing before you go. With those broker forecasts that Fresnillo’s earnings will rip higher in 2020, come predictions that dividends will soar as well. A predicted full-year reward of 12.4 US cents per share for this year is predicted to rise to 17.5 cents in 2020, a figure that yields an inflation-bursting 2.3%.

Sure there’s bigger yields out there, but it’s possible that dividends here could keep soaring at a better rate than those of many on the FTSE 100 as those planned production refinements ramp up profit growth over the next decade.

Fresnillo clearly isn’t without its risks, but it’s still a share with the capacity to create some stunning shareholder returns in the years ahead. I consider it to be a decent buy at current prices of around 590p.

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 recommended Fresnillo. 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

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »