Today saw the release of the H1 earnings for Anglo American (LSE:AAL). It unfortunately didn’t make for great reading, particular for income investors like myself. With a cut in the dividend per share, the Anglo American dividend yield has fallen, a notable development for one of the highest-yielding stocks in the entire FTSE 100. So should I still invest now for dividends, or look elsewhere?
Key points from the report
Underlying EBIDTA for the first half of the year fell by 28% when comparing it to the same period last year. Production output fell, mostly hindered by steelmaking coal and iron ore. Given that the business has a dividend payout policy of 40%, the fall in profits was always going to be reflected by a cut in the dividend per share.
As a result, the interim dividend per share was $1.24, down 27% from the $1.71 paid out last year. Don’t get me wrong, paying out a total of $1.5bn as an interim dividend is a lot, but when you break it down versus what investors were expecting, it’s not that exciting.
Aside from the numbers, the other priority being focused on is health and safety. Eliminating fatalities is clearly one element of this. However, the broader part of it is having a thriving workforce, which will ultimately help to boost efficiency and profits in the future.
The impact on the Anglo American dividend
There are two parts that go into calculating the dividend yield. One is the dividend per share. The fact that this has fallen negatively impacts the yield. However, the other part is the share price. Fortunately, the fact that the share price is down 11% in the past month has meant that the dividend yield fall has been cushioned. After all, even if the dividend per share is lower, if the share price is also lower then this goes some way to offsetting the impact.
The current yield is 7.25%, down around 0.5% from yesterday by my calculations. This does mean that other commodity stocks such as Rio Tinto and Antofagasta have higher yields.
Looking forward, I don’t think it’s right for me to completely ignore Anglo American shares due to the dividend cut. For a start, it might have a lower yield than peers, but it’s still well above the FTSE 100 average of 3.72%.
Further, it’s important to remember that the H1 results were the second best ever, only beaten by last year. This gives more context to both the position of the business and the dividend outlook. Sure, the figure dropped, but it was competing against a bumper 2021. Therefore, if the dividend per share can remain at current levels, I still think this is more than enough.
The Anglo American share price is down 10% in the past year. This has pushed the price-to-earnings ratio down to a low figure of just 4.67. So even though the dividend has been cut today, I’m still looking to buy the stock for long-term income and potential capital gains.
