Holding income shares for an indefinite period and reinvesting the dividends can significantly boost wealth. As payouts from the dividend stock are reinvested, these can generate more dividends, creating a snowball effect that accelerates portfolio growth over time.
BlackRock World Mining Trust‘s (LSE: BRWM) one such stock for me. It stands out as a compelling long-term investment and I can’t envisage me selling it. Here’s why.
Solid returns
As the name indicates, this specialist FTSE 250 investment trust focuses on the global mining and metals sector. It aims to grow capital and provide a reliable income stream, supported by the cash flows generated by its portfolio of mining assets.
The share price is down around 8% year to date as China’s slower economic growth has led to falling demand for commodities used in manufacturing and construction.
However, the share price is still up about 55% over five years. Add in the dividends too and the annualised total five-year return is well above 10%, according to AJ Bell.
Broad exposure
The portfolio’s diversified across geographies and commodities, reducing the risk associated with any single company.
Top 10 holdings (as of May 2024):
| Glencore |
| BHP |
| Rio Tinto |
| Vale |
| Anglo American |
| Freeport-McMoRan |
| Newmont |
| Teck Resources |
| Norsk Hydro ASA |
| Agnico Eagle Mines |
It also has investments in unlisted companies, as well as mining royalties and bonds that provide some income diversification.
Rather than buying individual mining stocks, I prefer this broad exposure. There’s a 0.91% ongoing fee, but I reckon it’s worth it as the trust’s managed by BlackRock’s seasoned team of experts. They have a deep understanding of the sector and are well-equipped to navigate its inherent volatility.
This is important because the mining sector’s cyclical. Stocks can fall suddenly and dividends do get cut during the troughs of economic cycles.
There’s a risk the yield, which currently stands at 6.2%, will likely be cut this year. However, over time, I expect mining earnings and dividends to head higher.
The energy transition
That’s because as the world pivots from fossil fuels to sustainable energy sources, demand for the metals crucial to the transition is expected to skyrocket.
The mining sector and materials sector… will deliver the copper needed for electrification, the metals needed to update electricity grids across the world, the lithium for use in batteries and the steel for wind turbines. The energy transition should provide a long-term source of demand for these mined commodities that will be structural rather than cyclical.
BlackRock World Mining Trust
Moreover, existing mines are mature and it’s proving difficult to increase production. It will take time to open new ones, suggesting the supply/demand imbalance may support rising prices in future.
Copper and gold
To give an example, the portfolio has a strategic focus on copper, which is seeing restricted new supply coming to market even as long-term demand for electrification’s heading higher.
The price of the metal hit an all-time high in May, but demand could double by 2035, driven higher by a lack of supply. Another area of focus is gold, which also hit a new record recently as it surged above $2,530 an ounce.
This stock offers a blend of income and exposure to the mining companies that are providing the metals needed for the green revolution. I plan to hold it forever.
