Miner Glencore’s (LSE: GLEN) incredible cash flows make it a passive income goldmine.
The firm earns billions selling the copper, aluminium, nickel, coal and such that it mines. It can then use that money to make huge payouts to its shareholders.
What’s more, geopolitical events made 2022 a banner year as the FTSE 100-listed firm racked up $256bn in sales. That figure makes Glencore the world’s leading mining company by revenue.
Surprisingly, the stock still seems very cheap right now at just £4.26 a share.
I don’t own any shares at the moment, but I’m tempted to pick up a few to get a passive income from a portion of those profits.
£1,000s in income
A £10,000 stake would buy me 2,347 Glencore shares at today’s share price of £4.26.
The forward dividend yield – how much the company expects to pay out in the next year as a percentage – is 8.89%. So my £10,000 stake would return an attractive-sounding £889 over the next year.
An £889 return from Glencore stock sounds pretty good for only a year, but it can get better if I reinvest my returns.
Hypothetically, a second year reinvesting at 8.89% gives me £969, a third year £1,055, and after 10 years my passive income is £1,913. All the while, the reinvesting has increased my £10,000 stake to £23,453.
That example does assume a steady return though. And one of the risks with mining firms is that they’re in a cyclical industry with boom and bust years. So my passive income from Glencore shares depends massively on outside events.
Geopolitical risks
Last year, the war in Ukraine was a huge issue for resource companies. Sanctions affected Russian-linked firms like ex-FTSE 100 miner Polymetal or Roman Abramovich’s Evraz.
But this was terrific for other companies whose metals were suddenly in big demand. Glencore’s revenues were up to $256bn in 2022 along with net income of $17bn.
The amount paid back to shareholders was an extraordinary $7.1bn.
Looking ahead, Glencore’s operations across six continents and 35 countries make it well-placed for the future. That’s especially the case if tensions between China and Taiwan escalate, much as I hope that doesn’t happen.
Cheapest FTSE 100 miner
Another reason I’m tempted to buy in now is that Glencore’s current share price looks cheap historically. The stock is down 26% since January and it strikes me that this may be a dip I could buy into.
After all, that 26% drop has pushed the price-to-earnings ratio of the miner down to only 3.99. That looks like a bargain compared to competitors Rio Tinto (7.98), Anglo American (7.96) and BHP (5).
Analysts think it’s cheap too, with a smattering of buy recommendations from the likes of Citigroup and Deutsche Bank. An average £6.18 price target offers a potential 46% increase on that current £4.26 price.
Am I buying?
Like any investment, this isn’t risk-free. And Glencore’s biggest issue will be phasing out its coal production, which was 53% of revenues last year. The 2050 Net Zero emissions target is a big talking point at shareholders’ meetings.
Still, the cheap price and passive income potential of Glencore stock mean I expect I’ll pick up a few shares in the near future.
