6% yield! This dirt-cheap stock is perfect for passive income

Looking to boost her passive income, our writer explains why this mining business could be perfect for her holdings.

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I’m always looking to boost my passive income stream through quality dividend stocks. One pick I’m considering for my holdings right now is Pan African Resources (LSE: PAF).

Precious metals

Pan African is a UK-based precious metals producer. It owns and operates metal mines in South Africa and makes money through the mining, extraction, and sale of gold primarily. It also possesses coal mining assets that it uses to mine and sell coal to local and export markets.

So what’s happening with Pan African shares currently? As I write, they’re trading for 13p. At this time last year, they were trading for 19p, which is a 31% drop over a 12-month period.

Recent activity, issues, and the bull case

Generally speaking, when there is economic uncertainty like now, safe-haven metals like gold tend to rise in price. This can usually help firms like Pan African make more money and send their shares on an upward trajectory.

However, this has not been the case for Pan African. Unfortunately, a spate of problems across its mining assets have caused the shares to fall. Pan African has cut its production forecasts for the current fiscal year, ending June 2024. It pointed towards operational and geological issues. One of these operational issues has been power-related.

I am conscious that mining is not a straightforward endeavour. This is one of the biggest risks when investing in any mining stock. A fall in production, mining assets not producing as they should, and operational issues could adversely impact Pan African’s performance and returns.

Despite recent issues, I still like the look of Pan African shares. From a passive income perspective, a dividend yield of just over 6% is enticing. In addition to this, the business has a healthy balance sheet that could help payouts remain consistent in the face of tough times economically and operationally. However, I am conscious that dividends are never guaranteed.

Next, Pan African’s valuation looks good to me. I feel the shares are trading at dirt-cheap levels right now on a price-to-earnings ratio of just five.

A stock I’d buy to boost my passive income

From a general perspective, when other investments fall in value, gold is seen as a safe-haven investment as the price of gold rises during economic uncertainty. This is because demand is driven up by investors keen to diversity their portfolio and spread their risk. This rise in demand and price could boost Pan African’s future earnings and returns.

Furthermore, Pan African recently secured funding to start its new Mintails mining project. This is good news as this should boost earnings and returns too. First production has been tipped for December 2024, and this should boost the firm’s output overall by a healthy 25%. This eye on growth to move the business forward is pleasing for me to see as a potential investor.

Overall I like the look of Pan African Resources shares. I’d be willing to buy some for my holdings when I next have the cash to do so. The dirt-cheap valuation, passive income opportunity, growth plans, and current macroeconomic outlook helped me make my decision.

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.

Sumayya Mansoor 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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