Glencore (LSE:GLEN) shares have been among the top performing FTSE 100 stocks over the past couple of years. The Swiss-based miner and commodity trader has benefitted from the energy crisis sparked by the Russo-Ukrainian war, as well as the pandemic’s disruptive effects on commodity markets.
In addition to growth in the Glencore share price, long-term investors have also earned substantial passive income thanks to a bumper dividend yield. At present, the stock yields 9.28% annually. This is much higher than the Footsie average.
So, if I’d invested £1,000 two years ago, what would I have today? Let’s explore.
Two-year return
In February 2021, the shares were trading for 300.15p each. Today, the firm’s share price has ballooned to 512.10p. That’s an impressive 70% gain over 24 months.
I haven’t bought Glencore shares before. However, if I’d invested a £1,000 lump sum two years ago, I could have bought 333 shares, leaving 50p as spare change.
My initial investment would be worth £1,705.29 today. But there’s more good news. Factoring in dividend payments over that period, I could add £142.74 to my total.
Assuming I didn’t reinvest the dividends, my two-year return from a £1k investment would leave me with £1,848.53 today. In essence, I’d have nearly doubled my money!
The outlook for Glencore shares
Glencore was an excellent investment over the past two years. But, what about the coming years?
Well, the company still looks cheap at today’s valuation despite recent astronomic returns. A price-to-earnings ratio of just 4.67 suggests there’s potential for future growth. In addition, a fresh $1.5bn share buyback programme should continue to add value for shareholders.
Coal’s been a key driver for earnings growth. The firm’s adjusted EBITDA climbed 60% to $34bn, and over half came from its coal mining business. EBITDA for this unit more than trebled to $17.9bn.
Although the decision to resist pressure to become more environmentally friendly has rewarded the company handsomely, I think this is a risk for future earnings prospects as governments strive to replace fossil fuels with clean energy solutions.
The company has long-term plans to exit the coal market. However, it’s maintaining guidance to keep output at 110m tonnes for the next few years, which shows it’s not in any hurry to do so. After impressive returns, it’s important to note that Glencore expects 2023 earnings will be lower as coal prices decline this year.
That being said, I like the company’s investments in energy transition metals, including nickel and copper. This adds diversification to the revenue streams, which could replace lost income from coal mining.
Legal battles are another issue that cloud the outlook for Glencore shares. Financial services outfit Legal & General has launched a new lawsuit against the commodities titan after it recently pleaded guilty to allegations of bribery and market manipulation.
Should I buy?
I think Glencore shares could continue to deliver good returns, but there are some notable risks. Accordingly, I’m not sure it’s wise to expect similarly extraordinary returns over the coming years.
Nonetheless, I think the shares are worth buying as handy passive income generators. If I had some spare cash, I’d allocate a small amount to Glencore stock for the market-leading dividend yield.
