ASX dividend share Deterra Royalties Ltd (ASX: DRR) has had a volatile year, to say the least.
Shares in the mining royalty stock are down 28% this year to date, currently swapping hands at $3.79 apiece.
But in my view, Deterra is a standout ASX dividend stock that's hard to ignore right now.
It recently decided to refocus its strategy on a combination of income and capital appreciation, giving investors the best of both worlds. Plus, it is trading at reasonable valuations.
Here's a closer look.
Why Deterra is a top ASX dividend share
Deterra is in an interesting position as it navigates the remainder of FY25. The recent sharp sell-off in its share price has seen it underperform peers in the sector.
But in my view, there are three reasons it could be a strong performer in 2024.
1. Change in strategy
Winding back the clock to June, Deterra advised it was making some changes. It acquired Trident Royalties Plc, another mining royalty company, for around $267 million.
More importantly, it decided to change its dividend payout policy from 100% of net profit to 50% of net profit.
Whilst viewed as a controversial decision by some, the ASX dividend share stressed it would still return all of its profits "when not required for investment".
In the meantime, it will be focused on making acquisitions that build more royalty income.
Investors have reacted brutally, driving shares to their lowest mark in 12 months, as I write. They were obviously holding for the dividend.
But the sell-off means the stock is heavily discounted and selling at a price-to-earnings ratio (P/E) of 12 times.
This is down from a multiple of 22 times in 2021.
If Deterra is now focused on capital gains and income growth, as it says it is, I think this could be an attractive opportunity worth looking into further.
It's now on management to execute.
2. Analysts are still bullish
Despite the downturn, many brokers remain optimistic about Deterra's long-term potential. UBS analysts have maintained a buy rating on the ASX dividend share with a price target of $4.90.
This suggests a potential upside of 29% from the current share price.
Similarly, Goldman Sachs recently upgraded Deterra from hold to buy, setting a price target of $4.70 per share.
In my opinion, these upgrades highlight confidence in Deterra's future growth prospects.
3. Dividend outlook still strong
Deterra's revised dividend policy still promises attractive yields. UBS forecasts dividends of 31 cents per share in FY24, translating to a yield of around 8% at the current share price.
For FY25, the expected dividend is 16 cents per share, offering a yield of approximately 4%.
Goldman Sachs also expects strong free cash flow and maintains a positive outlook on Deterra's dividend prospects.
The broker sees the ASX dividend share as less leveraged than major iron ore producers like BHP Ltd (ASX: BHP) and Fortescue Metals Group Ltd (ASX: FMG). This frees up additional cash to return to shareholders.
ASX dividend share snapshot
Following its change in strategy, Deterra Royalties stands out as a high-yield ASX dividend stock with growth potential. It also has a healthy balance sheet, valuable assets, and promising dividend yields.
According to top brokers, the recent share price drop might present a buying opportunity for investors seeking income and capital appreciation.
