Broker forecasts South32 (ASX:S32) dividend yield of 11% until 2026

Here’s why this mining share could be a top option for income investors…

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A smiling woman with a handful of $100 notes, indicating strong dividend payment by Thorn Group

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If you’re building an income portfolio then it could be worth considering the South32 Ltd (ASX: S32) dividend.

That’s the view of one of Australia’s leading brokers, which is forecasting huge dividend yields in the coming years.

What is being said about the South32 dividend?

According to a note out of Goldman Sachs, its analysts have retained their conviction buy rating and lifted their price target on this mining giant’s shares to $4.40.

Based on the current South32 share price of $3.88, this implies potential upside of ~13.5% for its shares over the next 12 months before dividends.

Speaking of which, Goldman expects the South32 dividend to be among the most generous on the market in the coming years.

For example, it is forecasting fully franked dividends per share of 32.3 US cents in FY 2022, 34.5 US cents in FY 2023, 34.8 US cents in FY 2024, 32.7 US cents in FY 2025, and 33.4 US cents in FY 2026.

At current levels and exchange rates, this suggests that the South32 dividend yield will be in excess of 11% each year through to at least FY 2026.

Why is Goldman bullish?

The note reveals that Goldman Sachs was pleased with the company’s proposed acquisition of 45% of the Sierra Gorda copper mine in Chile from Sumitomo Corporation. However, it is worth highlighting that as this transaction has not yet complete, Goldman hasn’t included it in its valuation or estimates.

So with management forecasting it to be earnings accretive, there’s a chance that the broker’s South32 dividend estimates could yet increase if and when the deal completes.

Nevertheless, its analysts are very positive on South32 regardless of this. This is due to its current valuation and strong free cash flow outlook thanks to strong prices for commodities such as aluminium and alumina. It expects this to underpin the aforementioned generous dividend payments over the coming years.

Should you invest $1,000 in South32 right now?

Before you consider South32, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and South32 wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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