South32 Ltd (ASX: S32) shares are down 0.9% to $3.74 apiece in afternoon trading on Thursday.
Hmm. Interestingly, this diversified ASX 200 mining share has also fallen 5.5% over the past month.
What makes this even more interesting is that fellow mining stocks Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP) have gone the other way. Both are up more than 5% over the same period.
South32 hasn't released any price-sensitive news since April, so perhaps this decline relates to falling commodity prices and the mix of assets South32 mines compared to its larger counterparts.
The miner is heavy into bauxite, alumina, aluminium, copper, silver, lead, zinc, nickel, metallurgical coal, and manganese.
It has mines in Australia, Southern Africa, and South America, as well as two development options in North America.
Regardless of the reason for the decline in South32 shares recently, one of the greatest benefits of buying this sort of dip is raising the dividend yield of your holding.
So, should you add South32 shares to your investment portfolio today?
How does an 11% dividend yield sound?
Well, top broker Goldman Sachs is certainly backing South32 shares for big dividend returns in FY24.
And FY25, in fact. Check this out.
Goldman is forecasting South32 shares to pay fully franked dividends of 27.7 US cents in FY24 and 28.1 US cents in FY25.
A quick conversion to Aussie dollars puts these payments at 42 cents and 43 cents, respectively.
That means potential dividend yields of 11% and 11.5%, respectively, based on today's share price.
The broker has a buy rating on South32 shares and a 12-month share price target of $4.80. This implies a potential 28% upside in FY24 alone.
The broker says the stock is attractive on valuation grounds and has exposure to a good mix of commodities.
My colleague James explains Goldman's valuation calculations in a recent article.
In short, the broker reckons South32 shares are trading for less than their net value of assets (NAV) and on an earnings before interest, taxes, depreciation, and amortisation (EBITDA) multiple of 4.5x.
Who else is backing South32 shares in FY24?
Morgans is also very positive on South32 shares. It tips a potential 50% upside in capital value and a fully franked dividend yield of 6% in FY24 and FY25.
According to a recent note, Morgans has an add rating on South32 shares and a 12-month share price target of $5.60. That suggests a mammoth potential upside of 50%.
The broker forecasts fully franked dividends of 15 US cents in FY24 and 15.2 US cents in FY25.
Those predictions are much lower than Goldman Sachs and convert to about 23 AU cents. But that's still an attractive potential dividend yield of 6.1%.
Morgans says South32 has "transformed its portfolio" to give it greater exposure to the decarbonisation megatrend as well as commodities experiencing "solid price strength".
The broker explains:
S32 has transformed its portfolio by divesting South African thermal coal and acquiring an interest in Chile copper, substantially boosting group earnings quality, as well as S32's risk and ESG profile.
Unlike its peers amongst ASX-listed large-cap miners, S32 is not exposed to iron ore. Instead offering a highly diversified portfolio of base metals and metallurgical coal (with most of these metals enjoying solid price strength).
We see attractive long-term value potential in S32 from de-risking of its growth portfolio, the potential for further portfolio changes, and an earnings-linked dividend policy.
Copper is particularly important here. The red metal is the only commodity expected to rise over the next five years, according to the federal government's official forecasts.
The government reckons the average annual copper price will rise from US$8,406 per tonne in FY23 to US$9,954 per tonne by FY28.
South32 isn't alone in upping its copper exposure, with Rio Tinto adopting the same strategy.
