The Motley Fool

I’d avoid Sirius Minerals (SXX)! I prefer this safer investment

Image source: Getty Images

Would-be fertiliser mining company Sirius Minerals (LSE:SXX) has gone from bad to worse as an investment and many shareholders have lost their life savings.

There was a modicum of hope for long-term holders of Sirius Minerals last week when the share price spiked in a flurry of excitement. Unfortunately, this was short-lived. October 11 was a particularly exciting day for the stock market. Sentiment was seeing positive vibes around a Brexit agreement between the UK and Europe, world growth worries were lessening as the US-China trade negotiations took an optimistic turn and for Sirius, hope hovered in the form of Qatari investors.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Qatar is already a key investor in SXX via the Qatar Investment Authority, which has a 3.3% stake and Sirius has now signed a 10-year agreement with Muntajat, a fertiliser distribution company owned by the Qatari state. The deal is to supply and distribute POLY4 into Australia, New Zealand and parts of the Middle East, Asia and much of Africa. This is potentially a welcome break for the company, but its problems still exist.

Financial brick wall

Sirius put together $1.2bn stage 1 financing for its planned polyhalite mine in North Yorkshire, with relative ease. Stage 2 financing has struggled to get off the ground and a $500m bond offering failed in September, sliding the Sirius Minerals share price into penny stock status. Unfortunately, the company now faces the dismal choice of a search for alternative funding, which is sure to dilute the share price further, or the devastating slide into administration

It’s never good when a company’s share price slides, but one of the heart-wrenching parts of the Sirius Minerals story is that so many of its shareholders were new to investing. As such, they didn’t have the savvy to recognise the risks of betting everything on one stock and the potential pitfalls of Sirius.

Savvy investors diversify and look for companies that have strong growth potential, without massive capital expenditure. Penny stocks should be avoided as they rarely result in multi-bagger cash rewards. Sirius currently has a share price of 3.4p, it doesn’t offer a dividend for obvious reasons and earnings per share are less than 1p. This is a very risky share and one that I’d avoid at all costs.  

High yield dividend stock

An income stock I like for its dividend and dedicated company management is insurer Aviva (LSE:AV). Its current dividend yield is 7.6% and earnings per share growth rate is over 9%.

Its price-to-earnings ratio is 10.7, which may seem cheap, but could be the sign of a struggling company. It was out of favour for a while because returns were low. CEO Maurice Tulloch has been in the position since March and is on a mission to streamline and simplify the business. An annual £300m cost-saving plan is on target and Reuters reported Aviva was planning on selling its Asia operations for £1.94bn, in an effort to focus on more profitable markets. Interest in this has been shown by HSBC, Allianz, Nippon Life and MS&AD Insurance.

Aviva’s trailing earnings per share are sitting at 58p and the current share price is less than its net asset value. Its progressive dividend and cash generative structure are the reasons I think the Aviva share price is a good addition to an income portfolio.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Kirsteen 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.