When chasing high-yielding shares on the ASX, one of the first places to look is within the resources sector. Because these companies are largely price takers (meaning they don’t have control over selling prices), when demand and prices are high they can make greater profits. These profits in turn are usually largely distributed to investors as dividends.
Since the dividend yield is based on the current dividend and the share price, a decreasing share price can also help to inflate a companies yield – although this is clearly not a favourable scenario for investors, as chasing high yields thanks to a falling price is a very risky endeavour. But this may be where we find ourselves, with the recent fires bringing climate change to the forefront of the public conversation and BlackRock’s recent announcement to cut thermal coal exposure impacting on mining shares.
However, if you’re looking for huge income shares today, then below are 3 ASX mining companies that definitely fit the bill.
New Hope Corporation Limited (ASX: NHC)
New Hope is half owned by Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and is an Australian thermal coal-mining company headquartered in Brisbane. Thermal coal is burned to make steam in coal-fired power plants to generate electricity. New Hope’s share price has nearly halved over the last 12 months to sit at $1.88 today. Over these 12 months, they have paid a fully franked combined dividend of 17 cents. This equates to a yield of 9.14% and 13.05% grossed-up.
Whitehaven Coal Ltd (ASX: WHC)
Whitehaven mines both thermal and metallurgical coals, which are used for the generation of electricity and the production of steel. It is the leading coal producer in the Gunnedah Basin but over the last 12 months has seen its share price nearly halve, with a decreasing coal price appearing to be accountable. In fact, over each of the prior 4 quarters Whitehaven has seen its achieved price of thermal and metallurgical coal decrease. And to pile on, it also announced in its recent December quarter report a 30% decrease in sales of produced coal over the prior corresponding period.
Largely thanks to its share price decline, Whitehaven currently offers a massive trailing dividend yield of 11.52%. This was partially franked making it 12.02% grossed-up. However, it also payed an additional 22 cents in special dividends throughout the year, nearly doubling the distribution to shareholders.
Alumina Limited (ASX: AWC)
Alumina is the world’s largest alumina (the product) and bauxite producer. Bauxite and alumina (as the name suggests) are both used for the production of aluminium. During FY19, the producer saw the price realised for its alumina sales decrease by roughly 20% when compared to FY18. However, this price was still comfortably above its production cost, which pleasingly also saw a small decline.
It has a dividend policy to pay a minimum distribution of 50% of the prior quarter’s net profit. So its dividend payments, and by extension, yield, is largely tied to the current commodity prices. Alumina currently offers a trailing net yield of 11.98% which is 17.12% grossed-up.
I am cautious about large dividend yields, especially as big as those listed above. To me they would appear unsustainable and are often products from either declining share prices or temporarily high commodity prices.
With deteriorating company profits often the catalyst for declining share prices, I would think it is only a matter of time until the dividends follow suit. However, if you believe in the future of these companies, and the commodities they produce, they certainly provide a very attractive yield today.
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Returns As of 6th October 2020
Motley Fool contributor Michael Tonon owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. 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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