Are these coal miners shaping up to be underrated ASX dividend shares?

Coal mining may not be a popular area of the market, but are these ASX mining shares about to pay big dividends?

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Five happy miners standing next to each other representing ASX coal mining shares which some brokers say could pay big dividends this year

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Key points

  • Coal businesses could become some of the biggest ASX dividend payers over the next couple of financial years
  • Credit Suisse suggests the New Hope grossed-up dividend yield could be more than 30% in FY22
  • Ord Minnett says Whitehaven Coal could pay a dividend yield of at least 13% in FY22

With coal prices currently at a relatively high point, the ASX coal miners are generating a lot of juicy revenue.

These companies are not typically known as ASX dividend shares. However, the commodities boom may be changing that, at least for the next couple of financial years, anyway.

There are a couple of stand-out names in this space, such as New Hope Corporation Limited (ASX: NHC) and Whitehaven Coal Ltd (ASX: WHC).

Let’s take a look at how these two companies are doing in FY22, and the dividend yields predicted by brokers for these ASX coal mining shares.

Will big profits boost dividends for ASX share investors?

The most recent news from New Hope was its quarterly update for the three months to April 2022.

New Hope said it generated underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of $358.6 million for the quarter thanks to the strength of coal prices. That brought the year-to-date underlying EBITDA to approximately $913 million.

The coal miner explained that thermal coal prices reached record highs after the Russian invasion of Ukraine. Concerns around global energy security added to this. The company noted that the April average gC NewC price (the global coal Newcastle price) was US$326.22 per tonne.

New Hope generated $281.8 million of cash flow in the quarter.

It was a similar sort of update from Whitehaven Coal for the three months to March 2022.

Whitehaven said it achieved a record average coal price of A$315 per annum for the quarter. That’s up from $101 per tonne in the prior corresponding period and up from $204 per tonne in the first half of FY22.

Outlook for coal prices

Whitehaven shared its outlook for the commodity price. The coal miner said:

While uncertainty remains whether the response to Russia’s actions in Ukraine will see a temporary or sustained shift in the high CV (calorific value) coal market, the potential is growing for structural change to occur. Replacement sources for Russian high CV coal supply are not readily identifiable with increasing potential for coal prices to find new highs for longer. Despite this, coal-fired generation remains one of the most affordable and reliable sources to meet base load energy requirements.

Broker ratings on ASX coal mining shares

Credit Suisse rates the New Hope share price a buy with a price target of $4.90. That implies a possible rise of around 50% over the next year.

The broker thinks that New Hope could pay a grossed-up dividend yield of 32.5% in FY22 and 41% in FY23 due to its high cash flow.

Ord Minnett thinks Whitehaven is a buy with a share price target of $7. That also implies an upside of around 50%. The attraction is coal prices and the high level of cash flow generation.

Ord Minnett is estimating a dividend yield of 13% in FY22 and 18.9% in FY23 from Whitehaven.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison 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 Scott Phillips.

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