This ASX stock just announced a special dividend with a 20% yield

A huge yield is on offer with this stock. But why?

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A big pay day is coming soon for shareholders of one ASX stock.

That's because this company has just announced a special dividend that will provide investors with a mouth-watering dividend yield.

Which ASX stock?

The ASX stock that is rewarding its shareholders is Red Hill Minerals Ltd (ASX: RHI).

It is an iron ore, gold, and base metals explorer based in the West Pilbara region of Western Australia.

While the company has a number of projects in its portfolio, the key one was the Onslow Iron Project. The company had a 40% stake in the project through the Red Hill Iron Ore joint venture.

It recently completed the sale of its interest in the joint venture to mining giant Mineral Resources Ltd (ASX: MIN) following last month's delivery of the first shipment of ore from the Onslow Iron Project to China Baowu Steel Group.

This shipment triggered the second payment of $200 million to the ASX stock from Mineral Resources.

Red Hill's executive chairman, Joshua Pitt, said:

Our Company worked closely within the RHIOJV over many years to advance this Project and found in MinRes an excellent team that is close to achieving the rare feat of completing a major project development, the Onslow Iron Project, on time and within budget. This second payment to the Company, followed by the royalty revenue stream generated from our royalty interest in the Project should benefit our shareholders while funding an effective gold and base metal exploration effort.

Special dividend

This morning, the ASX stock revealed that it has decided to return to shareholders funds raised from the Mineral Resources payment. It said:

[I] has resolved to pay a special dividend of $1.50 per ordinary share, fully franked at 25%. The dividend will be sourced from the second of two $200 million payments received from Mineral Resources Limited for the sale of the Company's 40% interest in the Red Hill Iron Ore Joint Venture.

Based on its current share price of $7.13, this $1.50 per share pay out represents a whopping 21% dividend yield.

In order to receive this dividend, investors need to buy the ASX stock before it trades ex-dividend on 9 July. After which, payment will be made 10 days later on 19 July.

Pitt commented:

We congratulate Mineral Resources on achieving first ore on ship from the Onslow Iron Project. This milestone has resulted in the payment of the second $200 million and has triggered the commencement of our 0.75% royalty stream. It has enabled our Board to declare the Company's sixth consecutive dividend and provides a great platform for the future.

Motley Fool contributor James Mickleboro 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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