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An unloved FTSE 100 dividend grower whose share price I think could surge

If you’re looking to tap the FTSE 100 for battered dividend growth shares then Fresnillo (LSE: FRES) is worth some serious attention, in my opinion.

The Mexico-focused silver digger endured some serious share price pressure in 2018 as low ore grades smashed output levels. Reflecting these troubles, its market value dived 40% over the course of the last calendar year, and while it started 2019 on the front foot, another disappointing production update this month means it’s now dealing at its cheapest for more than three years.

Time for dip buyers to nip in and grab a slice of the action, though, I believe.

Production problems

In that update of recent weeks, Fresnillo advised that production for the three months to March was down 14.8% from the same quarter in 2018, at 13.1 million ounces, reflecting reduced ore grades and lower volumes of processed material at its flagship Saucito mine and at its San Julián complex.

But this was not the only cause for investors to wring their hands in frustration as total gold production for the first quarter fell 8.8% year-on-year, to 211,100 ounces.

Production declines had been expected in the first quarter, but actual drops were worse than Fresnillo had forecast. In better news, the company affirmed its full-year production estimates of 58 million to 61 million ounces of silver and 910,000 to 930,000 ounces of gold. But this means that the mining giant can’t afford any more disappointing output reports.

Second-half fightback?

For investors who are prepared to take a risk, however, Fresnillo could be seen as a great share to load up on today.

The Footsie business is tipping production to rise in the second half as it begins to “realise the benefits from the investments we have made into infrastructure, equipment and an extensive infill drilling programme.” And if it can keep the ship steady until these expected benefits come in during the second half, the company’s share price could fly.

It’s also worth considering the direction of precious metals prices in the latter half of 2019, of course, and the impact that this could have on Fresnillo’s share price. Sure, the dual-role metal may have sunk back below $15 per ounce in recent sessions, but there are plenty of economic and political factors that could send it to the stars in the months ahead, from the outcome of tense Brexit negotiations to fears over slumping economies in Europe, and from the implications of fresh weapons testing by North Korea to the possible launch of impeachment proceedings against US President Donald Trump.

Profits AND dividends tipped to rocket

Against this backcloth, City analysts are expecting earnings at the Footsie firm to rise just 1% in 2019, but helped by increased production from expansion at its Fresnillo mine, as well as new output from its now-approved Juanicipio asset, the bottom line is predicted to swell 22% in 2020.

This also means that dividends are expected to balloon through this period. A full-year payout of 22 US cents per share is tipped for 2019, one which is predicted to charge to 27 cents next year. Consequently, a 2.2% yield for the former figure marches to a tasty 2.7%. Larger yields can be found on the FTSE 100, sure, but for those seeking solid dividend growth in the years ahead, I think Fresnillo remains a great pick, underpinned by those exciting new mining projects.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.