I actively look for investments that can make me a passive income on the side. Therefore, when I heard Glencore (LSE: GLEN) paid an eye-watering $5.6bn in cash dividends last year, I felt compelled to do further research into this dividend share.
Background
Glencore is a commodity trading and mining company with operations globally. It also makes money in the oil and gas industry.
In 2023, its shares have performed quite poorly, falling by over 15%. In the same period, the FTSE 100 climbed by over 2%. This highlights the huge underperformance of Glencore shares relative to the other constituents of the Footsie.
However, as an investor, I understand that sometimes even good stocks don’t perform so well. There are also some strong reasons to like Glencore.
Great dividend yield
Firstly, with a dividend yield of 7.6%, Glencore shares looks like a seriously good source to make some extra money on the side.
This easily beats the yield provided by the FTSE 100, which would currently only generate 3.7% in comparison. This isn’t necessarily a low amount, but it highlights how high the Glencore yield is.
By purchasing 2,857 shares of Glencore today, costing £4.61 each, I could collect a second income of £1,000 annually (keeping in mind that dividends are not guaranteed, of course).
Great valuation
Glencore shares are also valued pretty modestly. With a price-to-earnings (P/E) ratio of 7.6, this is also another area where its shares compare favourably with the Footsie, which has a P/E ratio of 11.6.
Glencore also sports a market cap of £57bn. In the trailing 12 months, it generated £229bn in revenue. There seems to be a strong case that its shares are in bargain territory.
Concerns about China
China is a big consumer in the commodities market. Glencore’s financial statement itself states that China now accounts for up to half of global demand for many commodities.
However, China is in a bit of a mess right now economically speaking. In the short term, this could have significant negative effects on for Glencore.
What concerns me is how this could quickly lead to Glencore cutting or even pausing its dividend. This isn’t an unlikely scenario as it did this in 2020 during the pandemic and also in 2016.
Opportunities
However, I am not so fussed about short-term risks, as I am constantly focused on the long-term potential of my investments.
China may mean less demand for commodities today, but many economists expect global demand for commodities to keep rising.
Particularly, as the world is becoming greener and the digital economy continues to grow strongly, there will be a strong demand for metals.
This places Glencore in an excellent position to be able to take advantage of this opportunity.
Therefore, if I had the spare cash to do so, Glencore shares would be close to the top of my list of dividend shares to buy today.
