Cheap dividend shares tend not to rise by 30% in one month. However, that’s exactly what investors in one UK-based company have seen.
What is this dividend share?
The stock is copper miner Central Asia Metals (LSE: CAML). Listed on the Alternative Investment Market (AIM) since 2011, it’s been operating the low-cost Kounrad solvent extraction and electrowinning (SX-EW) facility in Kazakhstan for the last decade. Annual production here now hits somewhere in the region of 12,500-13,500 tonnes.
In addition to Kounrad, the £500m-cap also runs a zinc and lead mine in North Macedonia, producing roughly 25,000 tonnes and 32,000 tonnes respectively every year.
I reckon there are a few reasons for CAML’s recent share price surge.
30% price rise
First, there’s the rise in commodity prices we’ve seen over the last couple of months, partly due to supply concerns following the invasion of Ukraine by Russia.
Second, recent numbers from the company have been excellent. Indeed, 2021 was its “most profitable year to date“. Earnings before interest, tax, depreciation and amortisation (EBITDA) and margins hit $141.5m and 60% respectively. It also ended last year with net cash of almost $23m.
Last week’s Q1 operations update provided another boost. It said it was on track to meet full-year production targets at both sites. As a result, Peel Hunt estimates that FY22 EBITDA will now come in slightly higher than previously predicted. On a longer timeline, the broker believes CAML will be debt-free by the beginning of 2024. It should also have sufficient cash for acquiring new projects.
This all sounds pretty good to me. Actually, it makes Central Asia Metals shares look something of a steal, valued as they are at a little less than seven times forecast earnings.
And the income?
As nice as the recent appreciation in the price is, I still think CAML remains attractive, primarily for the dividend stream. The total cash being returned to holders for 2021 will be 20p per share. That’s equivalent to a trailing yield of 7.4%!
Since this amount represents 45% of 2021 free cash flow (CAML has a policy of paying up to 50%) and business is good, I think there’s a fair chance of it being raised again this year.
Buyers beware
Of course, nothing is nailed on. Increasing energy costs and the need to pay higher wages are potential headwinds going forward. The markets for the metals that companies like CAML produce — which it has absolutely no control over — are notoriously volatile too.
We should put the recent rise in its place as well. The stock may have jumped in the last few weeks. However, the share price is now only slightly higher than where it was a year ago. This is why it’s vital to take a long-term perspective on performance.
Best of both worlds?
I continue to believe that Central Asia Metals is a potentially great buy for a dividend–focused portfolio, albeit one that is already suitably diversified away from mining stocks.
If the growing demand for renewable energy sources brings about a commodities supercycle as a few in the market are predicting, there could also be some nice capital appreciation to boot.
