This week we are going to look at global mining. A bombed out sector and we know that means potential capital gain on top of our income. There is a total of 19 pure mining stocks in DividendMax and I have to say the overall yield situation does not set the world alight! We can immediately dispose of 4 stocks without bothering with investigation. At DividendMax we see the ability to pay dividends as a measure of the strength of the company and with a few exceptions (such as Apple, generally we are correct. So, out go Lonmin, New World resources, Randgold and Hochschild mining without consideration. The DividendMax Optimizer criteria for eliminating those stocks was that the yield has to be above 2%.
With miners I think that size really is important (so many of the tiddlers have been wiped out over the past few years) so I am going to eliminate anything with a market cap below £1 billion and we are very quickly down to eleven stocks and at this point we can list them out:
Eurasian Natural Resource Corporation, Freeport Mamoran Copper and Gold Inc, Anglo American, Imerys, Fresnillo, BHP Billiton, Xstrata, Vedanta, Polymetal International, Rio Tinto and Kazakhmys.
I cannot begin to deal with the currency considerations so I feel inclined to eliminate Freeport and Imerys. All of these stocks are plays on the US dollar by definition and so I do not want to look at US or Euro stocks. Xstrata would have made the list but is too risky due to the takeover situation with Glencore.
Because of the current miners misery rating, I think we need to go for solid dividend cover of over 2x and our list is now Eurasian Natural Resource Corporation, Anglo American, BHP Billiton, Vedanta, Polymetal International, Rio Tinto and Kazakhmys. Our final criteria is going to look at who managed to weather the financial storm and look at consecutive annual dividend increases. This eliminates all but BHP Billiton and Vedanta. Coincidentally, both Vedanta and BHP have just hit 3 month relative lows against the FTSE 100.
This makes them both a good buy in my opinion. However, because of the overall stability of the markets in which it operates, the very strong cash flows and recovery potential, my dividend of the week is BHP Billiton. They make a lot of money. Pre-tax profits are forecast at £12.5 billion rising to £16.7 billion in the year to June 2014 putting them on a P/E of just over 10. We have unfortunately just missed a dividend and we now have to wait until September for the final, expected to be around 40p.
