As the world moves toward a net-zero carbon economy, demand for raw materials from the metals and mining industries is expected to skyrocket. Raw materials will be at the forefront of decarbonization efforts and electrification as economies transition from fossil fuels to wind and solar power generation, battery-powered and fuel-cell-based electric vehicles (EVs), and hydrogen production.
Since rising inflation and surging COVID-19 cases continue to spook investors, the market is expected to remain turbulent in the near term. However, high dividend-paying stocks could be ideal bets in times of market volatility to ensure a steady income stream.
Thus, we think it could be wise to bet now on fundamentally sound mining stocks BHP Group (BHP) and Rio Tinto Group (RIO). They are currently yielding more than 8% and are trading at discounted valuations.
BHP Group (BHP)
Headquartered in Melbourne, Australia, BHP explores for, develops, and produces oil and gas properties, and mines for copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal internationally. Petroleum; Copper; Iron Ore; and Coal are the company’s operational segments.
BHP’s profit from operations increased 80% year-over-year to $25.91 billion for the year ended June 30, 2021. Its net operating cash flow grew 73% from its year-ago value to $27.23 billion. And the company’s underlying EBITDA surged 69% from the prior-year period to $37.38 billion.
The stock has gained 20.8% in price over the past three months and 16.4% over the past month.
BHP’s $6.02 annual dividend yields 8.97% on its current stock price. On September 21, the company paid a $4 quarterly dividend. It has a four-year average dividend yield of 6.3%.
In terms of forward EV/EBIT, BHP’s 5.70x is 55.9% lower than the 12.93x industry average. In addition, its 11.07x non-GAAP forward P/E is 28.2% lower than the 15.42x industry average.
BHP’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
BHP is also rated B for Growth and Quality. Within the Industrial – Metals industry, it is ranked #3 of 35 stocks. To see additional POWR Ratings for Stability, Value, Momentum, and Sentiment for BHP, click here.
Rio Tinto Group (RIO)
RIO is a London-based global mineral resource exploration, mining, and processing company. The company’s product portfolio includes aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium. In addition, it owns and operates open pit and underground mines, mills, refineries, smelters, power stations, and research and service facilities.
This month, RIO has agreed to purchase four battery-electric trains in Western Australia’s Pilbara area as part of its strategy to reduce carbon emissions by 50% by 2030.
Last month, RIO agreed to acquire the Rincon lithium project in Argentina from Rincon Mining for $825 million. The company is controlled by funds managed by the private equity group Sentient Equity Partners. This transaction exhibits RIO’s commitment to build its battery materials business and strengthen its portfolio for the global energy revolution.
During the six months ended June 30, 2021, RIO’s sales revenue increased 70.9% year-over-year to $33.08 billion. Its operating profit increased 198.1% year-over-year to $17.44 billion, while its net income grew 271.3% from the prior-year quarter to $12.31 billion. Furthermore, the company’s net cash from operating activities increased 142.7% year-over-year to $13.66 billion over this period.
RIO’s stock has gained 9.6% in price over the past three months and 17.8% over the past month.
RIO paid a $3.76 quarterly dividend on September 23. While RIO’s four-year average dividend yield is 8.6%, the current dividend translates to a 9.94% yield.
In terms of non-GAAP forward P/E, RIO is currently trading at 5.27x, which is 65.8% lower than the 15.42x industry average. Also, in terms of its forward EV/EBITDA, the stock is currently trading at 3.31x, which is 59.1% lower than the 8.10x industry average.
RIO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. RIO is also rated a B grade for Stability, Value, and Quality. Within the Industrial – Metals industry, it is ranked #5.
In total, we rate RIO on eight distinct levels. Beyond what we have stated above, we have also given RIO grades for Growth, Sentiment, and Momentum. Get all the RIO ratings here.
BHP shares fell $0.69 (-1.03%) in premarket trading Friday. Year-to-date, BHP has gained 9.61%, versus a -3.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More…