I recently came across a dividend share on the FTSE AIM index that not only yields 11% but is profitable and debt-free. Not only that, the dividend’s well-covered and the company looks undervalued at the current price.
As always, when something looks too good to be true, the sceptic in me awakens. So I decided to find out if there’s a catch — or if I really struck gold.
Central Asia Metals
Central Asia Metals (LSE: CAML) is a small-cap, specialist base metals producer operating in lesser-known corners of the world. Its flagship asset is the Kounrad copper recovery plant in Kazakhstan, which can produce up to 14,000 tonnes of copper annually. It also owns the Sasa mine in North Macedonia, which can churn out around 21,000 tonnes of zinc and 29,000 tonnes of lead a year.
It isn’t a sprawling global miner like Rio Tinto or Glencore. Rather, it’s a compact, focused business generating healthy cash flows from two high-quality operations.
But does it have long-term potential?
Growth and valuation metrics
On the growth front, it’s a bit of a mixed picture. Revenue increased 6.7% year on year, while diluted earnings per share surged 27.6%, showing that margins have improved even as top-line growth has stayed modest.
However, the share price has moved up just 15.3% over the past five years, underperforming both the broader market and many commodity peers. The market-cap is also down nearly 28% in the last year, leaving the company worth a modest £282.5m.
However, that means the valuation now looks attractive. The company trades on a price-to-earnings (P/E) ratio of 7.6 and a PEG ratio of just 0.28, which is low enough to indicate the shares could be undervalued relative to growth.
Which brings us to…
A generous, well-covered dividend
The real draw for income investors is the dividend. CAML has paid dividends for 13 consecutive years, currently yielding a bumper 11%. Even with a relatively high payout ratio of 80%, it looks sustainable given the firm’s 23.8% net margin, £43m in free cash flow, and zero debt on the balance sheet.
Few dividend shares in the mining sector combine such solid cash generation with no financial leverage.
So what exactly is the catch?
The first obvious risk is the industry itself. Mining’s notoriously cyclical and Central Asia Mining’s profits are heavily tied to global demand for metals like copper and zinc. Although both are critical for infrastructure and the green energy transition, prices can swing wildly on economic sentiment or geopolitical disruptions.
Then there’s the company’s concentration risk. Operating only in Kazakhstan and North Macedonia exposes it to country-specific regulatory, tax and currency risks. Its falling market-cap and thin trading volume also make the stock more volatile and potentially harder to exit quickly in tough times.
My take
Copper and zinc markets stand to enjoy long-term demand growth from electric vehicles, renewables and grid upgrades. For investors seeking some exposure to this market, Central Asia Metals looks compelling.
It may not be a glamour stock and it carries geopolitical risk, but the combination of solid profitability and that hefty yield means it’s certainly a stock worth considering.
