ASX dividend stock Whitehaven Coal Ltd (ASX: WHC) has whipsawed in 2024 and is down more than 8% since the start of the year.
Shares in the coal miner currently fetch $6.79 apiece, having slipped a further 5% into the red this past month.
Despite this year's downsides, experts are bullish on Whitehaven shares and their potential for capital growth and current income.
If these projections are correct, the miner could be set to outperform the broader market in the years to come. Here's a closer look.
Brokers bullish on this ASX dividend stock
When modelling portfolios and/or selective investments, we often refer to 'expected returns' for various asset classes. The same is true for ASX dividend stocks.
Expected returns are analogous to average returns, meaning we can extrapolate forward what's happened in history. It's not a perfect barometer, but it works reasonably well.
According to S&P data, the ASX 200 index has delivered an average 8.3% return over the past decade.
Zooming out over 30 years, the average return is a little more than 9%.
But, whilst valuable, these are historical returns. Some forward guidance is needed to round out the picture.
Asset manager Vanguard expects growth of about 5% to 7% per year for Aussie stocks this coming decade.
Let's take this as our expected return going forward, keeping a range of up to 9% given history.
Any asset, whether stocks, bonds, or property, needs to beat these numbers to outperform the market.
Goldman Sachs recently upgraded Whitehaven to a buy rating and raised its price target on the stock by 23% to $7.90.
If the broker is correct, this translates to a return of 16.5% for the next year on price target alone.
Factoring in projected dividends of 18 cents per share this year and 19 cents the following year, this expands to a total return of over 19%.
Looking ahead, Goldman expects Whitehaven shares to earn 54 cents per share in FY26. At the time of writing, the stock has a price-to-earnings (P/E) ratio of 16.2 times.
If this multiple is stagnant, the implied valuation is $8.75 per share should it earn that much.
Let's say the multiple contracts to fifteen times, a 7.5% drop, this still gets us another 19% upside potential.
Both of these scenarios would see Whitehaven produce more than double Vanguard's expected return figures for the market for the next two years.
Market fundamentals
The ASX dividend stock is sensitive to the price of coal as the miner is a price taker on the black rock. Fluctuations in its price result in fluctuations in Whitehaven's market value.
Coal, crucial for steelmaking, remains in an uptrend at US$143.90 per tonne due to tight global supply, with high demand from India and China.
The company reported 6.4 million tonnes in equity coal sales in its latest update, split between thermal and metallurgical coal.
Queensland sales were up 13%, aided by better rail transport for its Daunia mine, while New South Wales operations performed in line with expectations.
Goldman Sachs expects these favourable price dynamics to drive Whitehaven's pre-tax earnings higher.
It estimates a 10% rise in coal prices could lift pre-tax earnings by 11% to 20% across the ASX dividend stock's portfolio.
ASX dividend stock takeout
The broad market has an expected return of 8% to 10% based on history but could be 5% to 7% moving forward.
Whitehaven shares are well positioned to outperform this in the coming years, experts say.
Much of this hinges on the price of coal, itself in a major uptrend. In the last 12 months, the stock is down 3%.
