This big 8% dividend makes me want to buy Glencore shares

Glencore shares have been up and down over the past decade, and the dividend has done the same. But right now, I like what I see.

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The Glencore (LSE: GLEN) share price had been dropping in 2023, after a strong 2022. But it’s up a bit in the past few weeks, as commodity stocks have gained.

It’s a cyclical business, and it’s very much tied to the state of the world economy. And that’s not too great right now. So maybe we’ll see another year or two of weakness.

But there’s a few things about Glencore that I like. And they’re enough to put it on my list of candidates to buy in 2023.

Big yield

The main one is that fat 8% dividend yield. That’s the forecast this year, and it’s about the same for next year too.

Now, some miners have cut their dividends in the past 10 years.

Glencore’s has dipped a few times, the last time in 2020. So it’s not one for steady, unchanging income, for sure. But forecast earnings should be enough to cover the cash for the next few years.

And a low price-to-earnings (P/E) ratio of only around 6.5 also makes me think the shares are cheap.

Consensus

Analysts are bullish on the stock too, and there’s a strong buy consensus in the City right now. We do need to be a bit wary of that, though.

I’ve seen stocks tipped as buys just because the trend is going that way. Still, it’s another of the small things that can add up to make a stock look like a buy.

Commodity prices have slipped a bit since early last year. And some, like iron ore, are way below their early 2021 levels.

Overall, though, prices have held up quite well over the past five years.

But I just don’t think they yet reflect the demand we’re likely to see in the coming decade and more.

Short term

In the shorter term, demand could fall. China, for example, is expected to cut its domestic steel production this year, for the third year in a row. I guess that’s behind the iron ore dip.

So yes, I see a real danger that the Glencore share price could wobble a bit over the next year or more.

And if global demand doesn’t pick up soon, I can even see the dividend being cut. Again.

But for the moment, the firm seems to have lots of spare capital. At FY results time in February, the board announced a new $1.5bn share buyback.

And for the 2022 year, net debt fell to just $75m. For a company with a market cap of nearly £60bn, I reckon that’s as good as zero. Right now, liquidity seems to be overflowing.

Volatile

I don’t think Glencore is a good one for those who don’t really like volatility. The share price has been erratic over the years, trailing the FTSE 100 a lot of the time.

I also don’t think it’s best for steady income from dividends, as they’ve been up and down over the years too.

But for someone like me, who reinvests dividends for the long term, I think Glencore could be a buy.

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.

Alan Oscroft has no position in any of the shares mentioned. 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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