ASX stock Deterra Royalties Ltd (ASX: DRR) has seen its share price slide in 2024. It has fallen behind the market, and shares are down 30% this year to date, closing at $3.70 apiece on Friday.
But for astute investors, experts say this decline might be an opportunity to buy a quality ASX stock at a discount.
And despite recent setbacks, Deterra remains a leading player in the mining royalties sector, with its key asset being the Mining Area C iron ore project, operated by BHP Group Ltd (ASX: BHP).
So, is this ASX stock primed to outperform? Let's dive in.
What caused the ASX stock's price drop?
We can largely attribute Deterra's sharp share price decline in 2024 to two significant announcements.
First, the company acquired Trident Royalties Plc, a move that rattled investors concerned about the impact on dividends. After all, buying a company means less cash leftover for shareholders.
Then, Deterra adjusted its dividend policy, reducing its payout from 100% of net profit to a minimum of 50%.
These changes caused a negative market reaction, pushing the share price down. Many investors saw the ASX stock as a pure play on mining royalties.
But it's important to know the company's rationale. This shift in strategy aims to support long-term growth by reinvesting profits into future royalty streams, which, if done well, could pay off handsomely in the years to come.
After all, for the ASX stock to buy more royalties, the cash has to come from somewhere.
Analysts remain bullish despite the downturn
While Deterra's share price has taken a hit, top brokers still see upside potential. UBS has a buy rating on the stock, setting a price target of $4.90.
This suggests a potential upside of more than 32% from its current level.
Similarly, Goldman Sachs upgraded Deterra from hold to buy, following Deterra's FY24 profit growth.
It valued the stock with a price target of $4.70, implying 27% growth.
Both brokers highlight Deterra's financial position, with a net cash balance of $30 million and access to a $500 million debt facility.
If these targets are met, it will outpace the S&P/ASX 200 index (ASX: XJO)'s long-term expected return of about 10% annualised.
Meanwhile, consensus also rates it a buy, according to CommSec.
But Deterra's shift to a 50% dividend payout ratio has raised questions about the ASX stock's appeal for income investors.
Thankfully, even with this change, the company is still expected to offer attractive yields.
Consensus forecasts a dividend of 23.5 cents for 2025, still offering a 6.8% yield at the current share price.
Foolish takeaway
Deterra Royalties might be down 30%, but brokers say it still has the fundamentals and assets to be a market beater in the long term.
The ASX stock is down 22.4% in the past 12 months.
