- Royalty income with no exposure to rising operating costs and low operational risk.
- Exposure to commodity prices.
- Geographic and commodity diversification.
- Low political risk.
- A sustainable dividend.
Tuesday, 4 May 2021
My Favourite Dividend Share (Portfolio Buy)
This purchase is a share that I have bought and sold more than any other - and it is quite an odd one.
Over the years I've held many different securities in the DIY Income Investor portfolio. Most holdings come and go, falling out - that is the nature of the portfolio: buy low (with a high yield) and sell high (with a low yield).
I do think of investing as a giant old fashioned merry-go-round composed of gilt wooden horses moving up and down on spiral poles. As the merry-go-round turns I like to ride the horses up to the top and then jump off, landing on another one on its way up. Sometimes that means riding the same horse more than once.
I've held my favourite dividend share for many years - buying and selling it repeatedly: it has netted me thousands of Pounds of profits, for which I am very grateful. (If you use the Search function on the right hand side of the blog you can see some of the related posts.)
It is an unusual company: Anglo Pacific Group (LSE:APF) doesn't make or sell anything, but instead buys the rights to royalty payments from mining company sales. A royalty in this context is a kind of tax on the extraction of raw materials, usually created as part of the process of generating capital to develop a mine. As such, it is essentially a play on mining activity around the world and Mr Market's view on this sector swings quite violently, resulting in big changes in the share price.
You can read about the company's strategy on it's website, which includes the following video.
In brief, it offers to investors:
APF has 'producing' mines in Australia (44%), Canada (32%), Chile (15%) and 'development' and 'pre-development' mines all around the world. The main commodities are coking coal and iron ore (making up half of their portfolio), gold, copper, vanadium, uranium and chromite. With a view to the future, a new commodity stream is cobalt, with the growing battery production market being a target.
The results for 2020 show that it was a bad year - but primarily because of the disruptions caused by Covid. As well as paying dividends they made £5m of share buybacks.
The trailing dividend yield is currently over 6% with a p/e ratio of under 12. Dividend cover in 2020 was a bit thin, at 1.4 but hopefully this will improve. On past performance, I am expecting an uptick in the share price in 2021, whilst pocketing a nice yield.
[Purchase price: £1.41]
Update 6/5/21: Positive Q1 Trading Update: "As previously announced, the Group completed the transformational U$205m acquisition of a cobalt stream from the Voisey's Bay mine during Q1 2021, the Group's largest and most significant transaction, pivoting the business from its coal heritage towards 21st century commodities that support a more sustainable future."
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.