Dividends from mining shares can flow like a river when the global economy’s booming. Glencore (LSE:GLEN) shares have a rich history of delivering huge cash rewards when broader commodities demand takes off.
But cash rewards can conversely sink sharply when times get tough. This was also the case at Glencore in 2023, as falling earnings saw it slash 2023’s dividend 71% year on year to 13 US cents per share.
Phenomena including China’s cooling economy and possible new trade tariffs pose threats to earnings going forwards. Yet City analysts believe dividends on Glencore shares will rise strongly in 2025 and 2026 after rebounding last year.
| Year | Predicted dividend per share | Dividend growth | Dividend yield |
|---|---|---|---|
| 2024 | 14 US cents | 8% | 3.1% |
| 2025 | 15 US cents | 7% | 3.4% |
| 2026 | 19 US cents | 27% | 4.3% |
How realistic are current payout forecasts though? And should investors consider buying the FTSE 100 mining giant?
Good and bad
Firstly, I’ll look at the company’s dividend cover to assess the strength of these estimates. I’m looking for a reading of 2 times and above, giving payout forecasts a wide margin of error.
On this front Glencore doesn’t score especially high. Dividends for 2025 and 2026 are covered 1.6 times and 1.5 times respectively by anticipated earnings. However, like with any company, I’ll also consider the Footsie firm’s balance sheet before making a judgment. Pleasingly, Glencore looks far healthier on this front.
Robust cash generation meant net debt dropped by $1.3bn between January and June last year, latest financials showed, to $3.6bn. And so the firm’s net debt to adjusted EBITDA ratio dropped to an ultra-low 0.3.
This sort of reading could, in theory, give Glencore the financial headroom to pay those predicted dividends while also investing in its operations, even if earnings drop.
To buy or not to buy?
I have to say however, that I’m not convinced by current payout estimates. While they could disappoint, there’s a good chance they might also surprise to the upside.
Past performance isn’t always a reliable guide to the future. But an uncertain outlook for commodity prices in the near term, combined with the highly-capital-intensive nature of its operations, means that dividends could remain volatile as in previous years.
Yet I still think Glencore could be a great stock to consider for long-term investors. It’s why I own shares in Rio Tinto, another FTSE 100 high-yielder.
Over the next decade, I think Glencore shares could deliver a blend of terrific capital gains and passive income. This is because considerable mining and marketing operations give it significant scope to exploit rising long-term demand for metals and energy products.
I’m especially encouraged by the firm’s large exposure to ‘energy transition’ metals such as aluminium, zinc, cobalt and copper (Glencore’s the world’s sixth largest copper producer). This could deliver vast profits as sectors like renewable energy and electric vehicles (EVs) gobble up vast quantities of material.
Today, Glencore shares trade on a forward price-to-earnings growth (PEG) ratio of just 0.4, well below the value benchmark of 1. Given this cheapness, combined with the possibility that dividends could grow sharply from this point onwards, I think the miner’s worth a very close look today.
