Need Dividend from Mining Stocks? Coal Miners Well Positioned to meet your Dividend needs

  • Dec 16, 2019 AEDT
  • Team Kalkine
Need Dividend from Mining Stocks? Coal Miners Well Positioned to meet your Dividend needs

Dividend, which could be deemed as a periodic or non-periodic cash inflow determined by the management, is highly sought after by the investing community to tackle the high volatility of the equity market, which impacts the magnitude of price appreciation or depreciation.

Cyclicals are typically volatile in nature, investors who can stomach the volatility tend to get the benefit of price appreciation in the long term. However, seeing one’s money moving downside with higher magnitude is not an easy task over the long-run and short-run.

That is why, the long-term or short-term investors need some kind of volatility premium to absorb the high fluctuation in their invested money, and dividend could be regarded as the premium, which compensates investors for volatility in the market.

Dividend distribution could be considered good or bad by the investing community, depending upon their assessment about the future prospect of the company. Typically, companies in a growing phase and vast array of upcoming projects tend to ignore divided to utilise the earning portion into the development of the upcoming projects, products, etc.

On the other hand, a more stable company, which had already reached the pinnacle of the growth phase, relatively distribute a portion of the earnings to the shareholders amid lack of high yielding projects or product pipelines.

It would be wise for the investors to familiarise themselves with few steps that could help them in spotting a high yielding dividend stock, To Learn; Do Read: 5 Easy Steps to Find Dividend Stocks with Higher Returns

Investing in Mining Stocks for Dividend

Resource companies typically pay decent dividends, depending upon the outlook of the commodity in future and upon the future plans of the company to acquire, expand or develop another asset for the same.

Resource stocks or mining companies with exposure in a single commodity tend to pay a higher dividend as compared to the mining stocks with multi-commodity exposure. A mining stock with a single underlying commodity typically operates within the purview of the single commodity; thus, the future prospect of the underlying commodity assist the management to decide on dividend distribution.

While on the other hand, mining stocks with multi-commodity exposure, tend to distribute fewer dividends as they tend to leverage on the negative correlation between certain commodities such as copper and gold.

When the prices of one commodity with negative correlation underperforms the other, mining companies divert the excessive earnings to develop the assets of the commodity, which is relatively performing better; thus, the scope of dividend distribution in mining stocks with multi-commodity exposure remains relatively less as compared to mining stocks with single underlying commodity.

Suggested Read: An Investors’ Guide for Commodity Valuation and Mining Stocks

Why Invest in Mining Stocks for Dividend?

Mining stocks give investors indirect exposure to the underlying commodity, which they want to invest in; however, the high volatility of the commodity markets typically scares the investors from taking meaningful exposure in mining stocks.

To protect the shareholders’ investment against high fluctuations of the commodity market, mining stocks pay a periodic or non-periodic dividend to the investors, which tends to minimise the drop in share prices if the underlying commodity does not perform well in the global market.

Thus, investors, who are actively looking for mining stocks to gain the indirect exposure in the commodity market, a decent dividend-paying stock could be a viable option to safeguard an investment against the high fluctuations in the commodity market.

Related Read: Gold-Backed ETFs Vs Gold; A look At Direct And Indirect Investment Approach

The Surmounting Dividend Growth in Coal Mining Stocks, Dividend Yields Over 8%

Coal, which makes up a significant portion of the energy generation in the domestic energy market, is anticipated by many industry experts to eventually fade from the energy generation, which further reduces the scope of coal usage in Australia and in many other geographical regions such as the United States, and Europe.

To Know More, Do Read: The Future of Energy Generation in Australia; Solar to Increase Three-Fold By 2024

The diminishing usage of thermal coal in the energy generation, particularly in the wake of Accord de Paris, is now prompting many ASX coal mining companies to pay-off high dividends to the shareholder from the earnings, which is still decent over the high-usage of coal in the Asian region.

To Know More, Do Read: Australia Diverting Coal To Emerging Asia While China’s Coal Import Policies Cracking Down on ASX Coal Stocks

The ASX-listed dedicated coal-mining company Whitehaven Coal Limited (ASX: WHC) distributed $464,854,000 of dividend in FY2019 (year ended 30 June 2019), which remained over 42 per cent higher against the dividend of $326,936,000 paid in FY2018. WHC is trading at $2.740 with an impressive dividend yield of 10.18% as on 16 December 2019 closing price.

Likewise, another ASX-listed dedicated coal mining company New Hope Corporation Limited (ASX: NHC) distributed $133,002,000 in dividend to the shareholders in FY2019 (year ended 31 July 2019), which remained over 33 per cent higher against the dividend of $99,738,000 distributed by the company in the previous corresponding period (or pcp). NHC is trading at $2.080 with an healthy dividend yield of 8.33% as on 16 December 2019 closing price.

WHC, NHC, and Newcastle Coal Futures Total YTD Returns (Source: Thomson Reuters)

The fall in coal prices have relatively exerted pressure on the share prices of the coal mining companies on ASX; however, the lower capex requirements of the coal miners has allowed the management to loosen the dividend purse.

On comparing the YTD returns delivered by Whitehaven and New Hope against the benchmark Newcastle coal futures, it could be seen that WHC has clearly outperformed the benchmark. Despite that, the share prices of the company have taken a spin on ASX from its 2018 peak price of $5.950 (high on 3 July 2018).


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