10X Dividend Growth With These 3 Mining Stocks


Russia’s reckless (and, sadly, increasingly ruthless) invasion of Ukraine has shone a spotlight on commodity markets. Many of them have already gone to the moon. Crude oil, of course, was the first to reach orbit.

But there is a hard asset which is always flying under the radar, at least for now. And this commodity just happens to be a source of aggressive dividend growth.

Oil, as mentioned, gets the most media attention. Not only has ‘black gold’ set the world of investors on fire, with the highest crude oil prices in more than 13 years, but Americans are being forced to watch this trickle down to the highest gas prices. all time.

The gold shines again too. The yellow metal is approaching its all-time high of $2,089 per ounce set in August 2020.

But a less-loved metal has already climbed the mountaintop and may continue to appreciate more amid the European dispute. And that bodes well for a small number of producers who have taken this metal and turned it into increasingly generous cash payments to their shareholders.

The doctor is inside

The metal in question is copper, that versatile industrial metal that’s used in everything from televisions and appliances to electric motors and generators.

Copper, like dozens of other durable assets, was already rising in recent months thanks to this blessed combination of growing demand and supply shortages.

Prices had already risen more than 20% year-on-year in January. And Bloomberg notes that “the benchmark price for shipping copper to the United States is at its highest in data dating back to 2003.”

This upward pressure on prices has only grown since Russia invaded Ukraine and much of the world retaliated with sanctions. Yes, Russia is one of the top 10 copper producers, but it still produces less than 4% of the world’s share of the metal. However, growing concerns over additional supply chain headaches have driven copper prices up to 10% since Russia’s military breached its neighbor’s borders, hitting all-time highs of nearly $5 a pound.

Other factors support “Doctor Copper,” so named because economists sometimes use the metal to gauge changes in the direction of the global economy. For example, Chile, the world’s largest producer of copper with around 25% of the world’s supply, has seen a substantial drop in production in recent months, blamed on water scarcity and poor quality ore.

Wall Street doesn’t exactly have the wherewithal to invest in this phenomenon – there are only a handful of listed copper producers in the US, but they’re worth a closer look. This is partly because they tend to offer a bullish move that is highly correlated with the price of copper and any other metal that bothers them. But it’s also because this small space is brimming with impressive dividend growth.

Let’s take a look at some of these stocks, which are yielding up to 5.4% and have increased their payouts up to 10x in recent years.

Newmont (NEM)

Dividend yield: 2.8%

One thing you will find with many copper sets traded in the United States is that they are not exclusive to one metal.

Such is the case with Newmont Gold (NEM), the largest gold mining company in the world who happens to be moonlit as a copper miner. It also produces silver, zinc and even lead. In just over a century of existence, it has spread its influence over four continents: North America, South America, Australia and Africa.

As with most miners, the prices of their underlying commodities are most important. But obviously, if you depend on these companies for your income, you would like a minimum of financial strength. And indeed, newmont has that, with a healthy balance sheet that includes $5 billion in cash and investments, and $8 billion in total cash.

This, along with extremely profitable trades that help it extract more liquidity from gold, copper and other metals than most of its competitors, has allowed NEM to produce one of the most beautiful charts in dividend growth I’ve ever seen.

Importantly, this dividend is only 56% of this year’s expected earnings and 60% of the slightly lower 2023 earnings forecast. raw materials. It’s just the nature of the beast.)

Royal Gold (RGLD)

Dividend yield: 1.1%

Royal Gold (RGLD)as you may have deduced from its name, is another diversified commodity play that is primarily anchored in gold, but also has several operations in copper, as well as silver, zinc, lead , nickel and cobalt.

The fact is that Royal Gold is not a miner.

The company’s nickname provides another clue: it’s actually about royalties and other profit streams. These contracts are based on all the different stages of metal mining, be it exploration, appraisal, development or production. Basically, Royal Gold provides money that allows miners to invest directly in, for example, construction, equipment or exploration, or even just to strengthen their balance sheet. In return, Royal Gold receives a profit stream from the operations of these miners.

In a way, RGLD is more diverse than a typical miner, as he has his fingers in a lot of pies. But again, his bottom line ultimately depends on the prices at which gold, copper, silver, and other metals are selling, so you still see as much price volatility as your average miner.

Dividend growth isn’t as explosive as Newmont’s (but who is?) – and really, it’s hardly explosive at all. Still, a 40% quarterly payout improvement since 2018 is a respectable clip, and it’s come at a steady pace. The drop rate is also a slim 30%, so it should be sustainable when and if the raw materials return to earth.

Southern Copper (SCCO)

Dividend yield: 5.3%

Southern Copper (SCCO) is the real McCoy, in more ways than one.

On the one hand, it is difficult to find minors of any a metal that can match SCCO’s combination of high current yield (over 5%) and dividend growth history.

And more importantly, it’s hard to find a more direct play on copper than this Phoenix-based miner.

Southern Copper operates primarily in Peru and Mexico (although it also has exploration operations in Chile), and it has the highest copper reserves in the mining industry. Again, metal miners tend to diversify, and SCCO is no different, also digging molybdenum, zinc, lead, coal and silver. But copper is well ahead – the company produced more than 965,000 tonnes of copper in 2021; the next closest metal was zinc, at 66,958 tonnes.

SCCO itself could end up contributing to higher copper prices, with production forecast at just 922,000 tonnes in 2022, more than 4% lower than last year. But it expects to rebound to 1 million tonnes by 2023, and up to 1.8 million tonnes by the end of the decade.

This gives Southern Copper more opportunities to take advantage of high metal prices…if high prices persist. If they don’t, it’s fair to wonder about that high dividend. SCCO is on track to pay $4 a share this year, against projected earnings of $4.26. That’s not much room for error.

Brett Owens is Chief Investment Strategist for Opposite perspectives. For more income ideas, get your free copy of his latest special report: Your early retirement portfolio: huge dividends, every month, forever.

Disclosure: none


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