Alumina Ltd (ASX: AWC) has long held the title for the highest dividend yield on the ASX and is currently yielding a tidy 11.41% per annum.
But, should you be adding Alumina shares to your Christmas shopping list or are there better alternatives on the market for next year?
Who is Alumina?
Alumina is an Aussie mining company with a $6.6 billion market cap and has been a solid performer within the ASX 200 in recent years.
The company was formed in 2003 and is essentially a holding company, with its sole activity being a 40% stake in a joint venture (JV) with US-listed Alcoa Corporation (NYSE: AA).
The Alumina share price has climbed 37% higher to $2.29 per share over the last 5 years but is currently down 24.98% from where it was just 12 months ago.
Why is the Alumina dividend so high?
Given Alumina shares are yielding a double-digit percentage at the moment, this is a fair question.
In my view, the Alumina dividend yield is so high simply due to its structure and operations via the joint venture, as it really doesn’t need to retain money for significant capex outside of the existing joint venture.
This means that shareholders get to enjoy the spoils of the Alcoa World Alumina and Chemicals (AWAC) JV which controls a significant portion of the global alumina market.
However, the double-edged sword is that the Alumina share price remains highly-cyclical and beholden to global alumina pricing, supply and demand factors, and macroeconomics such as the US-China trade war.
Global alumina prices have been up and down in recent years, with relatively regular supply disruptions proving to boost prices higher and with it, the Alumina share price.
Should you buy Alumina shares in 2020?
If you’re looking for dividend stocks, it is very hard to go past Alumina shares at the moment.
However, if you’re of the view that a recession is headed our way in the next 12-18 months then you may find alternative ASX dividend stocks that aren’t quite so cyclical.
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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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 Scott Phillips.
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