The Glencore (LSE: GLEN) share price has dipped 17.5% so far this year as commodity markets have normalised following Russia’s invasion of Ukraine. Meanwhile, the deteriorating economic outlook in China has put pressure on mining stocks across the board.
Given this backdrop, should I invest more in this dividend stock? Let’s take a look.
Q3 production update
Today (30 October), the share price rose 1% to 449p after the mining and commodity trading giant released its Q3 production update.
The key takeaway is that this was a solid production performance. And it means that the firm’s overall 2023 guidance for copper, zinc, coal and cobalt output was maintained.
However, it lowered its forecast for full-year nickel production by 9% to around 102,000 tonnes.
In the statement, Glencore said: “Nickel has been reduced to reflect…maintenance outages at the Sudbury smelter and a longer than expected recovery from 2022 strike action, together with a lower full-year revision for Koniambo.”
Strikes and maintenance issues are an unavoidable risk for a firm with the scale and geographic footprint of Glencore. But this disruption seems minimal in the grand scheme of things.
Encouragingly, annual profits at its trading division are set to be above the top end of its long-term $2.2bn-$3.2bn annual target. They’re likely to be in the previously communicated $3.5bn-$4bn range.
Glencore’s trading operations can help stabilise its financial performance when commodity prices are very volatile. I find this diversification particularly attractive.
Energy transition concerns
Now, there are ongoing issues around Glencore’s hugely-profitable coal business. Some big institutional investors, including BlackRock and Legal & General, have expressed major concerns about the firm’s environmental credentials in relation to this.
I do think the company will get there in time. It has already tried to buy the metallurgical coal assets of Teck Resources to put together with its own to spin them off into a separate entity. This has been rebuffed but may still go ahead, according to some analysts.
Additionally, Glencore is moving more towards mining metals needed for the energy transition. For example, it’s investing in lithium extraction in the Democratic Republic of Congo, where it already has copper operations.
No-brainer income buy?
Last year was a bumper one for commodity prices, with Glencore’s net income coming in at a massive $18.9bn. This is expected to fall by more than half in 2023.
Consequently, I don’t expect a repeat of last year’s $1.45bn special dividend and $3bn share buyback any time soon. But I’m happy to wait to share in the good times again, as and when the economic cycle permits.
Having said that, it’s not like shareholder returns have fallen off a cliff. The firm still raised its dividend by $1bn in August and intends to buy back another $1.2bn of shares by February.
Meanwhile, the valuation is cheap, as is usually the case with Glencore stock. The forecast yield for 2024 is currently 6.3%.
Overall, I think buying at today’s price could prove to be a rewarding no-brainer move from an income perspective. And there could even be some share price gains if and when clarity around its coal business emerges.
So I’m looking to scoop up more shares before 2024.
