Glencore (LSE:GLEN) shares haven’t had the best 2024 so far. With a decline of 4%, it lags the FTSE 100 significantly, which has risen by 3%.
Usually, I take this as a good sign for a stock that provides passive income, as it means the cost to acquire the dividend decreases.
However, this isn’t the case here as Glencore has also slashed its dividend payout for FY24. It’s now yielding only 2.4%, whereas it was yielding close to 10% previously.
But income isn’t the only thing to factor in when considering an investment opportunity.
As I’ll explain below, I believe now might be a great time to consider adding Glencore shares to your portfolio.
Why have Glencore shares fallen?
Before I talk about why it’s still a great stock, I must first explain the fall in share price.
As pointed out above, the dividend being cut didn’t help. However, this isn’t the full picture. This is because it didn’t cut the dividend because it was performing poorly, rather it’s because of the $6.93bn cash used to buy 77% of Teck Resources Limited’s steelmaking coal business, Elk Valley Resources.
If we look at its financial statements, we see a clearer reason for the fall in share price. Revenue declined by 15% to $218bn. More concerningly, net income fell by 75% to $4.3bn.
I must admit, though, that these concerns are rather short-lived when you consider that this was expected as global commodity prices fell. In terms of global commodity prices, 2022 was a special year as they shot upward due to geopolitical events such as the war in Ukraine. As prices fell in 2023, it would have been very difficult for Glencore to maintain the same results. All in all, 2023 was still one of its best financial years in the last decade.
However, given that global commodity prices can be very volatile at times, which is largely out of Glencore’s control, investors must weigh up this risk before considering an investment in its shares.
Long-term potential
Many economists are predicting that demand for commodities will continue to increase over time, especially as energy consumption increases.
Furthermore, the world is becoming increasingly digital and greener (in its practices). The production of electric vehicles (EVs) is a great example of this. Sales of EVs are growing rapidly. In 2017, there were 1.1m global sales, whereas there are expected to be 16.7m in 2024.
EV sales are expected to continue to march upwards, as they become the mainstream vehicle to purchase over the next few decades.
What has this got to do with Glencore, you may ask?
Well, EVs contain four times as much copper as combustion-powered engines. This transition is a great opportunity for Glencore to take advantage of, as copper is a key metal it mines and trades.
Moreover, nickel, another key commodity for the company, is expected to see demand soar by 50% by 2030.
These are just a couple of examples from many showing the increasing demand for commodities, which Glencore is in a prime position to benefit from in the long term.
Therefore, I believe it’s one of the best companies for investors to consider buying now.
