UK inflation has recently accelerated to a 41-year high of 11.1%. That’s not good if I’ve got cash sitting idly in the bank, losing more of its purchasing power every month. I’d rather put every spare penny I can afford into investments that can generate me a growing passive income.
I reckon this FTSE 250 stock has everything I’m looking for. It offers diversification, a good track record of growth, and a chunky 6.3% dividend yield.
Mining mega-trend
The BlackRock World Mining Trust (LSE: BRWM) is an investment trust specialising in global mining and metal stocks. It runs a diverse portfolio, with the companies it owns operating in nearly every corner of the globe.
I like that the trust’s holdings will play a central part in supplying the raw materials necessary for the world to transition to net zero by 2050.
Lithium, for example, is an essential component in the batteries of electric vehicles (EVs). Iron ore is needed to make wind turbines.
Top 10 Holdings of BlackRock World Mining Trust (as at 31 October 2022)
| NAME | WEIGHTING |
| 1. Glencore | 8.4% |
| 2. BHP | 8.2% |
| 3. Vale | 8.1% |
| 4. Anglo American | 5.5% |
| 5. First Quantum Minerals | 4.2% |
| 6. Rio Tinto | 3.7% |
| 7. Freeport McMoRan | 3.7% |
| 8. Teck Resources | 3.3% |
| 9. ArcelorMittal | 3.0% |
| 10. Oz Minerals | 2.7% |
Commodity stocks are cyclical. This means that investors in these stocks normally track the peaks and valleys of the cycle and buy and sell accordingly.
However, as a long-term investor, I have no interest in doing this. I want buy-and-hold exposure to the mega-trend of decarbonising the global economy, without having to monitor the latest price of, say, iron ore.
For an ongoing charge of 0.95%, the managers of the portfolio do all the complex commodity research work for me. Buying shares of the trust means I get instant exposure to iron ore, gold, copper, tin, and various rare earth metals.
The stock is up 75% in five years, comformably outperforming both the FTSE 250 and the FTSE 100.
The maths
The trust paid income of 42.5p per share last year. With today’s share price of 670p, that means the dividend yield stands at around 6.3%. To generate £1,000 in annual income, I’d need to buy 2,370 shares. These would cost me around £15,875.
So, if I had this amount of money, I could buy the trust’s shares today and start pocketing a grand a year in passive income. This is assuming the dividend stays the same or isn’t cut. There is no sign of that happening though. In fact, it’s more likely the total annual dividend exceeds 42.5p per share this year.
Risks
Of course, not everyone has a spare £15,875 lying around. But that doesn’t mean I couldn’t start small and work my way up to such an amount over time. In fact, drip-feeding small amounts in over time has proven to be far less risky.
One risk with the stock is worth pointing out. That is that the commodity markets can be very volatile. This can result in above-average swings in the price of mining stocks, including the trust’s share price.
I’ve recently bought shares of BlackRock World Mining Trust. I plan to drip-feed more money into the stock every month and reinvest my dividends.
