Here’s why I bought this dividend stock with its juicy 7%+ yield!

This dividend stock boosts Jabran Khan’s passive income stream. He explains why he purchased the shares recently.

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A dividend stock can boost my passive income stream through consistent dividend payments. One I purchased recently is Centamin (LSE:CEY). Here’s why.

Gold miner

As an introduction, Centamin is a gold mining business that focuses on assets in Africa. Its primary asset is the Sukari gold mine located in Egypt.

So what’s happening with Centamin shares currently? As I write, they’re trading for 86p. At this time last year, the stock was trading for 88p, which is a 2% drop over a 12-month period. In the last three months, Centamin shares are up 19% from 72p to current levels. This has netted me a small return to date.

Why I decided to buy this dividend stock

I weigh up the pros and cons of purchasing any stock after conducting thorough research and due diligence.

Looking at Centamin’s risks to start with, I noted that macroeconomic headwinds could hamper my position in the shares. For example, soaring inflation and the rising cost of materials can hinder any returns. Rising costs for any mining business are a concern as they can eat into profit margins. These same profits underpin returns.

As well as rising costs, Centamin shares could suffer at the hands of the reaction to soaring inflation. In times like this, central banks are raising interest rates in an effort to bring down inflation. This raises the price of the main currencies in the world, such as the US dollar. If this happens, the demand for and value of gold could fall.

Moving on to Centamin’s positives, the current volatility is one of the reasons I added the shares to my holdings. When inflation rises, commodities like gold are often seen as safer, defensive options. This is a trend seen throughout the world recently. Many investors have moved away from traditional stocks in sectors such as tech and finance, and move towards commodities.

Next, as a passive income seeker, I wanted an index-beating dividend stock, so sought out Centamin for returns and growth. At present, the dividend yield stands at 7.8%. This is higher than the FTSE 100 and FTSE 250 averages of 3%-4% and 1.9% respectively. I do understand that dividends are never guaranteed, however. In addition to this, the shares look good value for money on a price-to-earnings ratio of just nine currently.

Finally, I noticed that not only does Centamin have a good track record of performance, it has no debt on its books! No debt means more dividends for shareholders like me as well as money for growth initiatives. I am conscious that past performance is not a guarantee of the future, however. Looking back, I noticed that revenue and profit have grown each year for the past four years.

My verdict

I decided to buy Centamin shares for the passive income opportunity. I also wanted to diversify my portfolio with a commodity stock.

Although I don’t expect the current volatility to last forever, demand for gold, as well as Centamin’s fundamentals, including a strong balance sheet, were too good for me to ignore.

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.

Jabran Khan has positions in Centamin plc. 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.

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