There are many ASX dividend stocks that are candidates for long-term investment. Australian share markets contain some of the highest-quality dividend payers out there.
Where to start? Fishing the pond of beaten-down stocks is one place to start.
Deterra Royalties Ltd (ASX: DRR) shares are currently trading at $3.98, down 25% this year to date.
This decline means the stock can be bought at a trailing dividend yield of 7.48%. Does this present a compelling opportunity for income-focused investors? Here's what the experts say.
ASX dividend stock under pressure
As a reminder, Deterra Royalties is a mining royalties company. It boasts a diverse portfolio of mining assets. The Mining Area C iron ore project, operated by BHP Group Ltd (ASX: BHP), is its standout asset in my view.
Deterra has been heavily sold in 2024 after making two critical announcements. It acquired Trident Royalties Plc, another mining royalty company, and announced changes to its dividend.
Moving forward, it will pursue a combination of dividends and capital growth. That means moving from a payout of 100% of net profit to a minimum of 50%.
Investors responded negatively to the updates. Even though the shift aims to position the company for long-term growth.
The ASX dividend stock is now down 26% since its peak of $5.41 in February 2024.
Despite the recent sell-off, UBS analysts believe the ASX 200 stock is undervalued. The broker maintains a buy rating on Deterra with a price target of $4.90, suggesting a potential upside of 23% as I write.
Goldman Sachs has also shown confidence in Deterra. In a July note, it upgraded its rating from hold to buy, with a revised price target of $4.70 per share.
Goldman highlights the company's robust balance sheet. It has a net cash position of $30 million and access to a $500 million debt facility. It says this positions the ASX dividend stock well for future growth opportunities, should they present.
What about the dividend outlook?
Despite the changes in dividend policy, Deterra is expected to maintain attractive yields. UBS forecasts dividends per share of 31 cents in FY 2024 and 16 cents in FY 2025.
Based on the current share price, this translates to yields of approximately 7.8% and 4%, respectively.
Goldman Sachs also sees the company maintaining a strong dividend payout.
We upgrade DRR to Buy based on…Strong FCF and dividend yield: ~7% FCF & dividend yield (100% payout) for FY25; broadly in-line with major iron ore producers RIO/BHP/FMG on 7/6/5% (DRR div yield drops to 3.5% at 50% payout).
We believe DRR is less levered than the [iron ore] miners in the event [iron ore] prices roll off, given the high margin nature of DRR's royalty business.
Consequently, the revised dividend outlook is set to produce reasonable yields at the current share price, should they prevail.
ASX 200 stock takeout
Experts say Deterra Royalties' recent share price decline might present a buying opportunity. For investors seeking high-yield ASX 200 dividend stocks, this might be the place to start.
As always, conduct thorough due diligence and stay informed about market developments.
