A 14% dividend yield? Surely that must be a typo! No, no typo. That's the dividend yield currently on the table from the Grange Resources Limited (ASX: GRR) share price as we speak.
So is this too good to be true?
Grange Resources is an ASX 300 (ASX: XKO) iron ore company, specialising in the production of iron ore pellets. It owns the Savage Rover iron ore mine in Tasmania, as well as the Southdown Magnetite Project iron ore mine in Western Australia. In addition, Grange owns the Port Latta pellet plant in Tasmania.
Over the past 12 months, Grange has indeed paid out two dividends. The first was the March final dividend of 10 cents per share, fully franked. The second was the September interim dividend worth 2 cents per share, also fully franked.
That's a total of 12 cents per share in dividend income over the past 12 months. Given the Grange Resources share price is currently sitting at 84 cents per share, this company indeed possesses a trailing dividend yield of 14.29% right now.
But the key word there is 'trailing'. Just because a company has paid out some nice dividends in the past is no guarantee that investors will continue to enjoy those same dividends in the future.
If, over the next 12 months, Grange pays out a total of 12 cents per share in dividends then, yes, this company would have a forward yield of 14.29%, as well as a trailing one.
But that's not where we are at today. If, for instance, Grange decides to pay out 2 cents per share for its next final dividend, which would match its last dividend, this company will have a forward yield of 4.76%, not 14.29%.
That's a big difference.
Can Grange Resources really offer investors a 14.3% dividend yield today?
So how likely is this to happen? Well, that's the question. It's almost impossible to accurately predict any company's future. But we can look at what the company has said more recently.
Back in August, Grange warned investors during its half-year report that the average pellet price the company received during the six months to 30 June 2022 was US$174.96 per tonne. That is a steep drop from the US$260.54 it averaged over 2021.
But then in an update covering the three months to 30 September 2022, Grange revealed that its average received price over this period had fallen to US$95.17 per tonne, down from US$139.04 per tonne over the three months to 30 June.
Remember, less money coming through the company door rarely translates to higher dividends.
Grange SEO Honglin Zhao said this as well:
The past few months have been very challenging with demand for iron ore pellets products very weak, particularly from the Chinese market, largely due to high stock levels in the market.
As a consequence, some of our shipments were deferred into Q4 of this year. In addition, the current inflationary environment with elevated energy costs is resulting in increased cost pressures on the Company.
So things aren't looking good for the Grange Resources dividend going forward, it seems. Perhaps the markets agree. When the quarterly update was released on 27 October, the Grange Resources share price fell more than 16%.
We'll have to wait and see what the future of Grange Resources' dividends looks like. But there's a reason that this company is being priced with a 14.29% trailing dividend yield today.
