For investors wanting a decent level of income from their investments, stocks and shares have been one of the best options on the table since the financial crisis.
In my opinion, that’s still true today. In this piece, I’m going to take a look at two stocks where big dividends are a top priority for management.
This firm is returning $10.4bn to shareholders
My first pick is FTSE 100 commodity giant BHP Group (LSE: BHP). This £86bn Anglo-Australian firm can trace its roots back to 1851. Last year, it sold $43bn of resources, mostly iron ore, oil, gas, copper and coal.
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The company is currently in the final stages of returning $10.4bn to shareholders from the sale of its US onshore oil fields last year. Of this cash, $5.2bn has been used to buy back shares, while the other $5.2bn is being paid out as a special dividend of $1.02 per share.
City analysts’ consensus forecasts indicate that BHP is expected to pay a total dividend of $1.77 per share for the 2018/19 financial year, which ends in June. This gives the stock a forecast yield of about 8.5% at current levels.
Why I’d buy
I should point out that this payout is exceptional. Last year, shareholders received a more modest payout of $1.18 per share. Forecasts for 2019/20 are at a similar level. However, this still suggests a tasty 5.5% dividend yield.
Commodity profits will always depend on market prices for raw materials, such as oil and iron ore. But BHP benefits from owning a number of large, low-cost assets that provide good cash generation, even at lower prices. Debt levels are low and spending seems to be under control. I rate these shares as a buy for income.
This could be a cash machine
If you’re looking for a smaller business with greater growth potential, one stock I’ve invested in is mining royalty firm Anglo Pacific Group (LSE: APF). This company makes money by providing upfront cash payments to mine owners, in return for a percentage of future sales.
For mining operators, royalties can be a useful source of funding. For Anglo Pacific shareholders, they’ve provided an attractive income.
Figures released today suggest that 2019 could be another good year. Anglo Pacific shares were 5% higher at the time of writing after the firm reported a record portfolio income of £48m-£50m in 2018. The company says that the dividend for 2018 will be “not less than 7p” per share, giving a yield for last year of at least 4.6%.
The group’s biggest source of income is a stake in the Kestrel coal mine in Queensland, Australia. This generated about 75% of income during the first half of last year. There’s some risk here — Anglo Pacific’s royalty interest doesn’t cover the entire Kestrel mine. If the mine’s owners choose to develop other areas in the future, Anglo’s income could fall.
However, as things stand, the company believes it’s likely that Kestrel production will increase significantly in 2019. If coal prices remain stable, the company says this could have “positive implications for the level of dividends in 2019.”
In the meantime, the firm’s management is making use of strong cash flow from Kestrel to diversify the firm’s portfolio of investments. In my view, the shares are worth a closer look at current levels.
