Generating higher total returns than the FTSE 100 may seem much easier now that the index has experienced a period of volatility. Despite delivering a recovery in recent weeks, it continues to trade around 5% below the all-time high which was recorded in January.
However, beating the index remains a challenge. Uncertain prospects across a number of industries mean that investors may wish to focus on investments with growth and/or income potential which is significantly stronger than that of the wider index. With that in mind, here is one dividend stock and one growth share which could be worth a closer look.
Reporting on Friday was natural resources exploration and development company Metals Exploration (LSE: MTL). Its quarterly performance has been relatively upbeat, with 10,593 ounces of gold poured during the quarter. It was able to sell 11,338 ounces of gold during the quarter at an average realised price of $1,328 per ounce.
The company also announced that in the last week it has achieved and maintained 100% design throughput at its BIOX circuit. This could prove to be a major achievement for the business, and maintaining this level of throughput could lead to higher gold recoveries.
With Metals Exploration having the potential to deliver further operational progress, its future appears to be relatively bright. It may continue to benefit from a firmer gold price, with the prospect of higher inflation and volatility across global stock markets having the potential to increase demand for precious metals. As such, and while relatively risky, it could prove to be a sound long-term buy.
Also offering strong total return potential over the medium term is fellow mining stock Anglo American (LSE: AAL). It has experienced a hugely challenging period in recent years, with commodity price falls causing its profitability to come under severe pressure. This caused dividends to be suspended in 2016, although they were reinstated in 2017 as the company’s financial outlook improved.
Contributing to a stronger financial performance has been the decision to restructure the business. It is now more streamlined following the disposal of a number of assets, and appears to have a more competitive position on costs versus sector peers.
With Anglo American forecast to yield as much as 4.9% in the current year, it appears to have a strong income outlook. Dividends are expected to be covered around three times by profit, which suggests that the company’s income prospects are sustainable. It also means that there is likely to be sufficient capital available to reinvest in the business for future growth.
While commodity prices could experience further volatility over the medium term, the prospects for the industry are generally bright. Since Anglo American trades on a price-to-earnings (P/E) ratio of around 11, it seems to offer a wide margin of safety at the present time.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.