As a strategy for growing your wealth, dividend investing takes some beating. It’s easy to understand — simply receive, reinvest, repeat — and requires relatively little effort from an investor beyond picking out companies that not only offer decent payouts but look likely to continue doing so.
Based on the proposed hike to its dividend, one company that appears to fit the bill is FTSE 100 mining giant Glencore (LSE: GLEN).
Multi-bagging miner
As recoveries go, Glencore’s is truly impressive. Since plummeting to around the 70p level back at the start of 2016 amid concerns over the amount of debt on its books following its merger with Xstrata, the stock has more than four-bagged in value. For such a massive company, that kind of share price gain is quite staggering. Buy on the (big) dips, indeed.
To recap, it announced its strongest year on record back in February. As a result of excellent performance in its marketing division, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 44% to $14.8bn — higher than analysts were expecting.
Revenue rose 25% to $205bn thanks to an improved commodities market and the company returned to profit of $6.2bn from a loss in the previous year.
It gets better. Following through on its goal to reduce borrowings, the company announced a huge drop in debt from $15.5bn to $10.7bn. That’s still pretty big but nowhere near as bad as it once was.
So, what about those dividends? Glencore stated that it would reward loyal shareholders with a 20 cents per share payout in 2018, equating to $2.9bn in total. According to Stockopedia, the total dividend is forecast to rise 499% (from the 3.5 cents per share payout owners received last year).
Can Glencore maintain its share price momentum? If you’re fully signed up to the electric vehicle revolution then it’s easy to be bullish on its future, even if the fact that the mining industry is cyclical must always be borne in mind. The company is a major player in copper and cobalt — two commodities that are predicted to be very much in demand. In addition to this, CEO Ivan Glasenberg has made no secret of his desire to look for possible acquisitions, even if he is still to decide on which commodity he wishes to target.
Want to get on board? The ex-dividend date is 26 April.
Larger yield
Fellow miner, BHP Billiton (LSE: BLT) is also expected to expected to grow its payout this year, albeit by ‘only’ 32% according to analysts.
While Glencore may have grabbed the headlines, recent numbers from its industry peer have also been pretty decent.
Following “solid operating performance“, the diversified miner revealed underlying EBITDA of $11.2bn in February’s interim results (covering the six months to the end of December).
Like Glencore, BHP announced a reduction in net debt (from $20.1bn to $15.4bn) as a result of “strong free cash flow generation” from rising commodity prices. The interim dividend was also raised by 38% to 55 cents per share.
So which offers the better deal for those focused on generating income from their portfolio?
Right now, BHP is predicted to return a yield of 5.8% in the current year. Glencore comes in at a forecast 4.2% but with better cover. Given the importance of picking companies with secure-looking payouts (as opposed to the highest), I’d likely opt for the latter.
