Investing in Yancoal Australia Ltd (ASX: YAL) shares could be an appealing option for Australian investors looking for returns and passive income.
At the market close on Thursday, Yancoal shares were trading at $6.18 apiece, with a trailing dividend yield of 11.3%. This follows a strong three-year period of dividend payouts from the ASX coal miner.
But what kind of income could you expect by May 2025 if you invested $5,000 in Yancoal shares now? Let's break it down.
How much passive income could you generate from Yancoal shares?
If you invest $5,000 in Yancoal stock at the current price of $6.18, you would own approximately 809 shares.
With Yancoal's trailing dividend yield of 11.3%, these shares could generate a notable amount of passive income.
Over the next 12 months, you could expect around $565 in annual dividends from a $5,000 investment at that yield — assuming the dividend and share price remained steady, of course (and excluding any franking credits). If the dividend drops, however, so too will the payment.
So how can we be sure it will remain steady?
Yancoal's financial performance
Firstly, we can never be 100% sure of the future. But three standouts from Yancoal's first quarter results indicate to me the company is primed to continue its mouth-watering dividends going forward.
One, it has maintained a solid cash balance of $1.66 billion – a $266 million quarterly increase – despite realising lower average coal prices over the last three consecutive years.
Yancoal reported 11.3 million tonnes of saleable coal production and 14.0 million tonnes run of mine (ROM) coal production with in the first quarter of CY 2024, at an average realised coal price of $180 per tonne. This is down from the $232/tonne reported in its 2023 annual results, and $378/tonne in 2022.
Two, Yancoal's board approved a 32.5 cents per share dividend in February this year after finishing 2023 in such a strong cash position. As I've mentioned previously, this latest dividend isn't out of sync with recent payments either.
Three, Yancoal has a history of strong dividend payments even in times of weak coal pricing. In 2019, when coal prices fell as low as US$71/tonne, the company still paid annual dividends of 39 cents per share. For context, coal currently trades at US$144.90 per tonne as I write.
So, despite fluctuations in coal prices, Yancoal's quarterly update last month added confidence for its dividend into 2025, in my view.
Why invest in Yancoal shares?
Yancoal shares offer exposure to both thermal and metallurgical coal markets. There is a strong demand for these commodities out of China and India, according to Trading Economics.
Even as coal prices have experienced ups and downs, Yancoal has maintained a consistent dividend payout, which is attractive for those seeking dependable passive income.
In my opinion, the company's stable financial position and reliable cash flow also make it an appealing choice for income-focused investors.
Foolish takeaway
A $5,000 investment in Yancoal shares today could yield noteworthy returns by the end of 2025, provided the company maintains its current dividend stream.
This would change if Yancoal were to reduce its quarterly payouts. But, the company's strong cash balance and recent financial results add a layer of confidence to my outlook on this.
But always remember one critical thing: past performance never guarantees future results.
