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He FTSE 100 It’s packed with income stocks that offer sky-high dividend yields that crush the returns on cash.
I’d rather buy them to build retirement wealth than save in a Cash ISA, even though the Bank of England just raised base rates to 4%. Why put up with a little over 3% in easy access when I can double that with high dividend stocks like these two?
dividend stock for me
Investors in Chile-based copper mining group antofagasta (LSE: ANTO) have enjoyed tremendous growth of late. The price of its shares has shot up 27.14% in 12 months and 87.78% in five years. However, it is still trading at an undemanding 14.9x earnings.
There could be more to come as investors anticipate demand from China, the world’s biggest copper importer, to rise now that the country is released from lockdown. Guessing commodity price movements is difficult, however, as a global recession could affect demand elsewhere. Also, the price of copper is up 19.5% in a year and will have to work hard to go higher.
Last month, Antofagasta posted a 10.4% drop in production to 646,200, mainly due to lower grades and a drought. However, he anticipates that it will recover between 670,000 and 710,000 tons in 2023.
However, what I seek is income. The stock currently returns an impressive 6.7%, but this is covered only once by earnings. On closer inspection, Antofagasta’s dividend track record is a bit checkered. It paid a dividend per share of 44 US cents in 2018, which fell to 18 cents in 2019, then spiked to 55 cents in 2020 and $1.43 in 2021.
Another concern is that Antofagasta generates profits in US dollars. As the Federal Reserve slows down and eventually reverses its interest rate hikes, the dollar is likely to fall from today’s high and this could hit earnings.
I would invest in Antofagasta rather than a cash ISA, but I think there are safer dividend yields in the FTSE 100. Like this one.
A platinum investment
Anglo-American (LSE: AAL) is another FTSE 100-listed mining company but more diversified as it also produces platinum, diamonds, nickel and iron ore. It is the world’s largest producer of platinum, with around 40% of global production, and owns the world’s largest diamond company, De Beers Group.
The company’s share price has barely risen in the past year, rising just 1.7%, but it’s up 100.41% in five years. However, Anglo American’s shares are cheaper than Antofagasta’s, trading at just 6.5 times earnings.
Its dividend also looks healthier. Yields 6.9%, covers 2.5 times earnings. Payouts have also been smoother, with the dividend per share pegged at $1 in 2018, then $1.09 in 2019, $1 in 2020, and $2.89 in 2021.
Today’s fourth quarter figures show copper production increased 52% to 244,000 tonnes following an increase at its Quellaveco mine in Peru. Total production in its portfolio increased by 10%.
Once again, investors like me should balance the improving Chinese outlook with fears of a global recession and a weaker US dollar. However, I find Anglo American’s low valuation and high performance tempting. I’ll buy it when I have some money to spare.
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