The Alumina Limited (ASX: AWC) share price has opened trading today at the $2.35 mark, which is close to where AWC shares were at the start of the year. After rising to $2.74 in late February, Alumina has been on a downward trend ever since, and is now close to the bottom of its 52-week range. So does this put Alumina in the buy zone?
What does Alumina do?
As its name implies, Alumina is an ASX leader in the aluminium, alumina and associated products industry (yes, Alumina the company produces alumina the product). Alumina is a rather unique company, with its company structure more akin to a partnership than an individual business. This is because Alumina works with United States-based aluminium producer Alcoa Inc. in a joint venture known as Alcoa World Alumina and Chemicals (AWAC) – Alcoa owns 60% of this venture and Alumina 40%. Together, AWAC owns bauxite mines and alumina refineries across Australia, Brazil and Guinea among others – making AWC shares a pure ASX aluminium play.
Alumina's dividend
Let's talk about the elephant in the room… Alumina is perhaps most known these days for its hefty dividends, particularly its 2018 final dividend. Due to spiking aluminium prices over 2018, AWAC's profits increased more than 80% between 2017 and 2018 – from US$901 million to US$1.64 billion. This enabled Alumina to rush cash out the door in the ($A) 19.6 cents per share dividend that was paid in March this year. This dividend translated to an annualised yield of 16.75% (or 23.9% including franking) on today's prices.
Before you call your broker on these numbers, remember the Alumina dividend is highly unlikely to repeat itself. The huge rise in profits that the company experienced is unlikely to be sustained (as it resulted from a commodity price spike) – the company itself has stated that "we must assume that the two major alumina market disruptions in 2018 will not repeat nor continue to the same degree this year and alumina prices will be lower."
Foolish takeaway
While Alumina is a quality, low-cost producer and its AWAC partnership is a productive and effective arrangement, I certainly wouldn't be buying into AWC shares in order to chase dividends. The company has itself admitted that the 2018 alumina price is unlikely to repeat itself and therefore future dividends are likely to be far tamer. If you're after a pure aluminium/alumina play though, this company would be a good place to start.
