High yield stocks have lost out to high growth momentum stocks. But this could be the time to be buying this generous ASX dividend paying stock.
The stock in question is the Alumina Limited (ASX: AWC) share price and Citigroup just upgraded the miner to “buy” from “neutral”.
This is in part due to the broker’s belief that its dividend yield is set to surge to 13.6 cents a share by FY22. This puts the stock on a forecast yield of around 14% for that year – which will make it one of the best yielders on the S&P/ASX 200 Index (Index:^AXJO).
Time for ASX high-yield dividend stocks to shine
But where valuations stand at the moment, I prefer high yielders and value buys in the current environment.
Value and yield play
According to Citi’s analysis, Alumina is both! The stock tumbled by around 6% over the past six months when the alumina price is up 2% to around US$270 a tonne.
“The market has been reassessing its view on the pace of alumina price recovery and commodity analysts have been trimming nearer term alumina price estimates,” said Citi.
But the downgrade cycle has run its course. The AWC share price is trading at a substantial discount given Citi’s long-term alumina price forecast of US$325 a tonne.
What’s more, the 12-month forward consensus earnings revisions are no longer negative and this could be an early sign that sentiment towards AWC is turning.
Yearly dividend increases
The improving prices for aluminium and alumina will underpin dividend increases over the next few years too.
Alumina is expected to pay a US6 cents-a-share full year dividend for FY20, and this increases to US7.6 cents in FY21 before more than doubling the following year to US13.6 cents (18.9 cents).
Citi’s 12-month price target on the stock is $1.80 a share, which implies a 30% return if you included the dividend.
But Alumina isn’t the only stock that’s well placed to outperform in 2021. The experts at the Motley Fool have picked some of their favourite buys for the year ahead.
Follow the free link below to find out more.
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Brendon Lau owns shares of Telstra Limited and Westpac Banking. Connect with me on Twitter @brenlau.
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Kogan.com ltd. 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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