Could South32 (ASX:S32) shares be poised to deliver monster dividends?

Will South32 shares pay out like a slot machine next year?

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A happy construction worker or miner holds a fistfull of Australian money, indicating a dividends windfall

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The South32 Ltd (ASX: S32) share price is having a decent day of trading so far this Thursday. At the time of writing, South32 shares are up 0.68% at $3.70 each. That looks pretty good considering that the broader S&P/ASX 200 Index (ASX: XJO) is in the red by 0.25% today.

$3.68 puts the South32 share price in the upper-middle of its 52-week range of $2.36 and 4.07 a share. At this pricing, South32 currently has a dividend yield of 1.78%. That’s objectively decent, but by no means impressive compared to some other ASX 200 blue chipsWestpac Banking Corp (ASX: WBC) for instance, currently has a trailing yield of 5.77% on the table right now. South32’s old parent company BHP Group Ltd (ASX: BHP) has 10.22%.

If we include the special dividend that South32 paid out last year alongside its final dividend, we get a trailing yield of 2.51%. All of South32’s recent dividends have been fully franked, so that yield grosses-up to 3.59% if we include the value of these franking credits. But that could be the tip of the iceberg for South32’s income potential, if a top ASX broker is to be believed.

Top ASX broker predicts monster South32 dividends going forward

Investment bank and broker Goldman Sachs reckons South32 shares have plenty of gas left in the tank. The diversified ASX 200 miner is currently on Goldman’s ‘conviction buy’ list, with a 12-month share price target of $4.40 a share. That implies a future potential upside of more than 20% in capital appreciation alone.

But it’s what Goldman thinks South32 has in store for its dividends, that might really excite income investors.

So in FY2021, South32 paid out 6.9 US cents per share in dividends. But Goldman estimates that FY2022 will see the miner fork out a monstrous US 30.9 cents per share. Followed by 33.4 US cents in FY23 and 34.4 US cents in FY24.

This prediction would give South32 a rough forward yield of between 12% and 13% for both FY22 and FY23 on the company’s current share price. Monster dividends indeed.

This, Goldman predicts, will be funded by strong commodity markets for aluminium and alumina in particular, as well as zinc and nickel. It does assume that South32’s current share buyback program will continue at around US$250 million per year. And that South32’s overall dividend payout ratio stays at around 70% of earnings.

I’m sure all South32 shareholders will be looking at Goldman’s predictions, and crossing their fingers they play out.

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

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

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Motley Fool contributor Sebastian Bowen 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 recommended Westpac Banking Corporation. 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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