The global mining market is estimated to grow at a compound annual growth rate (CAGR) of 12.9% to reach a market size of $3.36 trillion by 2026. While the share of coal in power generation is falling, miners are making up for this lost revenue by investing in materials such as copper, cobalt, lithium, nickel, and many more. These are materials required to build the infrastructure necessary to transform the world economy into a green one.
Here are three mining companies that pay huge dividends and are likely to profit from this transition to renewable energy.
Rio Tinto Group
Rio Tinto Group (NYSE: RIO) is a UK-based company engaged in the exploration, mining, and processing of aluminum, copper, iron ore, and other minerals. It operates in 35 countries, with the majority of its non-current assets based in the OECD.
The company depends on iron ore for its sales which accounts for 66% of total revenue, but the price of iron ore is forecast to drop as demand from China falls. The company claims battery materials will be a strong growth engine but these currently account for less than 10% of revenue. This means a lot of investment is required, which won’t see returns for roughly ten years.
The company’s five-year average dividend yield was 9.45%, which is great for a low-interest rate and inflation environment. The forward dividend yield is 13.65%, and when adjusted for the current high inflation rate, yields 5.12%. Between 2001 and 2020, Rio Tinto’s dividend payments increased at a CAGR of 11.88%. Over the past 12 months, the company has seen its share price fall by 36.45%, which would be one reason why the yield is so high.
BHP Group Limited
BHP Group Limited (NYSE: BHP) is an Australia Based resource company that operates via Iron Ore, Copper, Coal, and Other (nickel and potash) segments. The company also provides several other services, such as towing, freight, marketing and trading, and finance.
The company is invested heavily in Australia for iron ore, copper, coal, and nickel production. This had a major impact on the company when countries were locked down during the pandemic, as Australia had some of the toughest restrictions. This lowered the company’s output which was partially offset by higher commodity prices. Still, this highlights the need for diversifying its production locations.
Like Rio Tinto, BHP pays a high dividend yield of 13.69%, which translates to a yield of 5.09% after taking inflation into account. Between 2001 and 2021, dividend payments grew at a CAGR of 7.05%. This falls to 2.36% when discounting 2021, due to the exceptional dividends paid as a result of higher commodity prices. Both rates are significantly lower than that of Rio Tinto, however, BHP’s 12-month share price decline is also lower, at 30%.
Vale S.A. (NYSE: VALE) is a Brazil-based company operating through two segments; Ferrous Minerals and Base Metals. Its products include iron ore and pellets, manganese, ferroalloys, nickel, and its by-products. This is also the smallest company on the list, with a market cap of $60 billion.
Vale S.A. is the cheapest miner on this list, with a price-earnings-ratio (P/E) of 2.65. This is roughly one-third the multiple of BHP’s P/E ratio and 56% below Rio Tinto’s. Such a low multiple may indicate that the company is undervalued and is due a correction at some point. Although, it may also show that investors are less willing to invest in a company based in Brazil due to political, economic, social, and currency risks.
Vale has had the slowest dividend growth rate, with a CAGR of 1.55% between 2003 and 2020. The company has regularly had quarters with declining dividends per share and even some without any payout. This makes the company riskier than some of its peers. However, the company appears to be aiming for semi-annual dividend payments over the coming years. At present, the forward dividend yield is at an exceptional 16.58%, almost double the unusually high inflation rate. However, this may be due to Vale’s share price falling by 44.5% over the past year.
Shane Vigna, Author at MyWallSt Blog