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A FTSE 250 dividend stock yielding 7% that is absurdly cheap right now

2018 has been a year to forget for London’s quoted gold miners. Take Polymetal International (LSE: POLY), for example.

Its share value has retraced around 30% since the bells rang in New Year’s Day, the FTSE 250 stock tracking bullion prices lower. The safe-haven metal has fallen 7% since the turn of 2018 and breached the psychologically-important $1,200 per ounce barrier last week.

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Gold prices have suffered as part of the sell-off that has been seen across both base and precious metal complexes in response to the intensifying trade wars between the US and its trade partners. What’s more, the surge of the dollar against both developed and emerging market currencies in more recent sessions has also put the yellow metal on the defensive.

Surging production

It isn’t all over for gold, however. Of course further dips cannot be ruled out in the current climate but, as I mentioned when I recently covered Randgold Resources, there remains a galaxy of geopolitical and macroeconomic factors that could send bullion values higher again.

I am unmoved in my belief that gold will remain a critical investment vehicle as it has been for centuries, and that this current lull in metal values is a prime opportunity for both commodity and share investors to grab a bargain.

Indeed, Polymetal now deals on a forward P/E ratio of 9.4 times, inside the widely-accepted bargain terrain of 10 times or below. As production ramps up at the Russia-focused digger, this valuation leaves plenty of upside, in my opinion.

Gold equivalent production at the firm surged 11% during January-June, a result that shoved pre-tax profit 19% higher to $305m. What’s more, this month Polymetal shipped maiden metal from its Kyzyl project in Kazakhstan, freighting 2,000 tonnes to a customer in China. The business remains on course to produce 1.55m ounces of gold equivalent this year, it has said, up from 1.08m ounces in 2017. It hopes to drag 1.7m ounces of material out of the earth in 2019 too.

Dig for dividends

Reflecting the recent problems for gold prices, City analysts now expect earnings at Polymetal to flatline in 2018.

But thanks to hopes that gold prices will remain broadly solid — particularly if physical buyers jump in to capitalise on the current price trough — and that the mining giant will hit its output targets, the number crunchers are anticipating that it will return to profits growth with a bang in 2019. A 32% profits improvement is currently being tipped.

It therefore follows that dividends are expected to remain generous as well. Last year’s reward of 44 US cents per share is predicted to stay frozen in the current period, reflecting the anticipated earnings stall. However, it is predicted to march to 59 cents next year.

This means that yields stand at a colossal 5.2% and 7% for 2018 and 2019 respectively. I believe that these figures, allied with Polymetal’s dirt-cheap valuation, makes it a scintillating dip buy right now.

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Royston Wild 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.

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