The Glencore (LSE: GLEN) share price continues to broadly rise even as speculation of a global recession mounts. In 2022, the firm has gained an impressive 33% in value.
At current prices of 508p per share, the mining and trading business looks particularly attractive for dividend investors. This is because its dividend yield for 2022 sits at an enormous 8.8%.
This is more than double the FTSE 100 average of 3.9%. And things get even better for 2023. For then, Glencore shares move into double-digit territory at 10%.
But how realistic are current dividend forecasts in the current climate? And should I buy Glencore shares for my own portfolio?
Rapid dividend growth
Dividends here have been growing strongly since they were axed at the height of the pandemic. Last year, the business paid an ordinary dividend of 26 US cents per share. That was up 117% year on year.
City analysts expect more steep dividend hikes over the medium term too. Total ordinary payouts of 51 cents and 58 cents are expected in 2022 and 2023 respectively.
Encouragingly, this year’s forecast is well covered by anticipated earnings, boosting the likelihood of the miner hitting these targets.
Dividend coverage sits at 3 times. This well above the minimum of two times that’s said to provide investors with a wide margin of safety. Having said that, 2023’s estimate looks less robust. For then, dividend coverage sits back at 1.8 times.
Cash machine
Glencore’s strong balance sheet could also give it the financial flexibility to pay big dividends even if earnings disappoint.
The company reported “significant” cash generation during the first half of 2022. As a consequence, net debt plummeted by more than 60% year on year to $2.3bn.
In fact, Glencore’s rapid financial improvement encouraged it to return an extra $4.5bn of cash to investors for the first half. This comprised of $1.45bn worth of special dividends (equating to 11 cents per share) and a $3bn share repurchase programme.
Market-beating dividends
The going has been good at Glencore in 2022. Soaring energy prices resulted in the business posting record first-half EBITDA of $18.9bn, more than double what it posted a year earlier. I fully expect it to meet the City’s dividend estimates for this year.
I’m not as convinced by next year’s forecasts however. Though I do still expect the business to pay dividends well above the market average.
The firm produces and markets energy and metals products. This makes it highly cyclical and earnings are in danger next year as the global economy cools. News that Chinese imports and exports both sank in October is a worrying omen for commodities demand next year.
A bright outlook
But as a long-term investor, I’m still tempted to buy the FTSE 100 share for my portfolio. Rising demand for green technologies (from electric cars to wind turbines) and rapid urbanisation in emerging markets could light a fire under commodities consumption in the coming decades.
What’s more, at current prices, I think the company could be a bargain. As well as those big dividend yields, Glencore’s low share price also creates a forward price-to-earnings (P/E) ratio of just 3.8 times.
