Mining stocks like Glencore (LSE:GLEN) have seen their shares behave like rollercoaster rides in recent years. The inflation of commodity prices has sent their valuations all over the place. But for income investors who’ve held on through the volatility, a lot of dividends have been paid out.
In 2022, shareholders received a total dividend per share of $0.56. Around a third originated from special one-time payouts throughout the year. Regardless, $7.1bn was returned to investors. In 2023, prices cooled alongside inflation, yet still another $1.6bn of earnings was distributed through dividends. And as things stand, the same is set to be repeated in 2024.
But the question now on income investors’ minds is, where will dividends go from here? Let’s take a look at what analysts are projecting.
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Commodities are hard to predict
Like every other mining enterprise, Glencore doesn’t have any pricing power. The price of metals is determined by supply and demand in the global markets. This can actually be quite advantageous since mining has a lot of fixed expenses.
In other words, if the price rises, so does Glencore’s profitability. We saw that first-hand in 2022. But sadly, the opposite is also true, which is why dividends subsequently fell so sharply.
Looking towards the long term, management’s set its focus on copper as a flagship product. Demand for the metal’s already climbing due to its critical use in renewable energy technologies as well as electric vehicles (EVs). In fact, since the start of 2024, the price of copper’s risen by almost 20%.
But coal also seems to be on track to play a large role in Glencore’s portfolio. Initially management intended to spin off its recent acquisition of Elk Valley Resources – a supplier of steelmaking coal. Yet that decision seems to have since been reversed as demand for steel’s back on the rise.
The cyclicality of commodities is notoriously hard to predict. And as a consequence so are Glencore’s dividends. Nevertheless, analysts have made their opinions clear. Dividends over the next five years are expected to remain entirely flat.
| Year | Dividend Per share (cents) | Dividend Per share (pence) | Dividend Growth | Dividend Yield |
| 2024 | 13 | 9.75 | 0% | 2.3% |
| 2025 | 13 | 9.75 | 0% | 2.3% |
| 2026 | 13 | 9.75 | 0% | 2.3% |
| 2027 | 13 | 9.75 | 0% | 2.3% |
| 2028 | 13 | 9.75 | 0% | 2.3% |
Could dividends defy expectations?
It’s important to remember that forecasts need to be viewed with a healthy dose of scepticism. After all, they’re based on a series of assumptions that may not come true. The uncertainty for Glencore is only amplified by the currency exchange risk between the USD and GBP. And looking at past predictions for this company, forecasts have been wrong far more often than they’ve been right.
However, given the rising importance of copper and Glencore’s impressive reserves of this increasingly valuable metal, why are dividends projected to be flat? One potential explanation is the state of the firm’s gearing. Management’s already highlighted its intention to reduce leverage, which cuts the amount of excess cash flow available to fund dividends.
That certainly sounds like a sensible idea, given the trouble a debt-heavy balance sheet will cause when commodity prices inevitably tumble again in the future. However, for income investors, Glencore shares don’t look like a reliable source of passive income growth. At least, that’s what I think.
