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I believe that technology stocks are synonymous with growth. But this sector took a heavy hit last year in the stock market. In fact, my technology exposure was the worst performing part of my investment portfolio. By contrast, valuations of big-dividend stocks, like those of the oil and mining giants, skyrocketed in 2022.
My belief is that money paid today is better than the promise of money tomorrow. Don’t get me wrong, I find capital growth attractive. But I also feel that I need to be compensated more easily and more frequently for the risk I take in today’s hectic market.
Dividend stocks in the spotlight
For me, glencore plc (LSE:GLEN) delivered the kind of total return through 2022 that I’m looking for. I believe the company outperformed on several key metrics. Its valuation grew by 30% compared to the FTSE 100 (one%). Dividend stocks also delivered a strong dividend yield of over 4%, above the FTSE 100 average (3.6%).
In my experience, past performance is not an indicator of the future. However, I believe the same conditions that allowed Glencore’s underlying business to thrive last year remain.
Rising commodity prices are one of the main reasons why price inflation has spiked in 2022. The current outlook for inflation is mixed, but a rise is not out of the question.
Glencore may continue to benefit from these terms. Especially considering how well diversified it is across the various commodities. The company invests in everything from battery metals to nickel, copper and coal. From my perspective, all of these products are doing pretty well. Even if they are not, Glencore’s trading business can benefit from any disruption to the commodity market. This was the case last year, when market disruption led to a more than 600% increase in annual profit.
headwinds
However, the company has clear obstacles that I must also be aware of. Many analysts in the city believe that dividend stocks are already fairly valued compared to their peers. There are also many forecasts that point to a downward trend in earnings over the next three years.
Does this put me off? No. I still think Glencore’s story of consistently making a profit will continue. This provides the miner with the means to add long-term value to shareholders. It has increased dividend payments to shareholders by 38% in the last five years.
Dividend income is crucial
I view the commodity trading environment as volatile. Therefore, I calmly expect Glencore to outperform its mining peers due to its commercial scale. The company has a clear desire to return excess profits to investors. Its dividend is expected to grow 10% next year. I can still benefit in other ways if the dividend falls. For example, I could receive other cash returns in the form of share repurchases if I hold the shares for the long term.
Glencore’s commitment to shareholders is a very attractive feature. I think regardless of capital growth, Glencore will reward me with a decent return on all my holdings.
The stock is not one I intend to buy at this time. But it is certainly the top mining stock on my short list for 2023.
