Up 16%! Is the South32 Ltd share price a steal?

Source: iStock

The South32 Ltd (ASX: S32) share price has been on a tear, rising 16% in just 5 days!

South32 Ltd Share Price

Source: Google Finance

Source: Google Finance

As can be seen in the chart above, shares in the $15 billion South32 Ltd have caught the attention of investors.

What’s going on?

South32 is the resource business spun out of BHP Billiton Limited (ASX: BHP). It produces a diverse basket of commodities, like coal, manganese, lead, alumina, bauxite and zinc. Like its mining brethren, such as Fortescue Metals Group Limited (ASX: FMG) and Alumina Limited (ASX: AWC), South32 shares have been bolstered by surging commodity prices.

Just take a look at the change in commodity prices over the past year, according to data from

  • Aussie thermal coal – up 69%
  • Zinc – up 78%
  • Aluminium – up 21%
  • Nickel – up 17%
  • Silver – up 20%
  • Lead – up 36%

The positive movements have been reflected in the company’s financials. In its financial report for the half-year period to 31 December 2016, South32 reported an 8% increase in revenue to $3.2 billion and a profit from continuing operations of $620 million — up from a loss of $1.7 billion last year.

Should you buy South32 shares?

The spectacular rise of South32 shares might not be done yet. However, I’m not a buyer of South32 because I would not be comfortable holding a position in a business that is subject to the whims of commodity markets.

I prefer to hold shares of growing businesses with a powerful brand and leading products.

A Big, Fat, Fully Franked Dividend

This company's dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.

Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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