Why This Mining Stock Is An Excellent Buy?
Mining stocks are always a good bet for their dividend yields. Coal India, Hindustan Zinc and NMDC almost always declare dividends, whereby you can end with yields ranging from 6 to 12 per cent. Most of the mining companies are cash rich and also are zero debt companies.Hindustan Zinc: Why this stock is a great pick?
Hindustan Zinc is the second largest zinc-lead miner globally and the ninth largest silver producer across the globe. The company is focusing on its expansion to become the third largest silver producer globally.
This is a company that is a zero debt company, with net cash of 2.65 billion dollar, which is almost Rs 19,000 crores. At some stage if this amount is distributed to shareholders, through dividends or buyback, they are in for a bonanza.
Mining business is a high margin business, and the company reported an EBIDTA of more than 50 per cent on an average in the last three years.
Zinc prices to stay robust
Chinese zinc production has declined in 2018, due to environmental regulations and also reduction in production at some existing mines like Penasquito, Antamina, Myra Falls and Empire State may keep prices elevated. In any case, zinc prices are unlikely to fall too much from these levels, as they are also factoring a slowdown in the global economy.
The company in any case, is a low cost producer, which is also focusing on reducing costs. In fact, it is also looking at reducing the mining costs by 10 per cent.
It also has an integrated 25-year mine life.
Expansion to drive growth
The company is looking at expanding zinc lead capacity to 1.2 metric tonne in H2 from 1 MT currently. It plans to scale the same up to 1.35 MT. Similarly, plans are also underway to eventually push silver production to 1,000 tonnes.
The focus here would be on silver rich deposits and enhanced recoveries. All in all, the expansion plans at the company will add significantly to production in the years to come.
Strong on dividend yields
Last Financial Year the company declared a dividend of Rs 20 per share. Based on the same, the dividend yield of the company works to 9.29 per cent. The company tends to declare a dividend in March and in 2019, since it has not declared a dividend in March, it might go for a dividend either in Oct 2019 or in the month of March 2020.
The shares are also attractive for their dividend yield. One must also remember that the stock has fallen significantly from its 52-week high of Rs 309 and is now available at just Rs 215, which makes it a good pick. The stock is available at a price to earnings ratio of around 10 times, one year forward earnings.
Hindustan Zinc is a cash rich company, with a solid dividend paying track record and is also debt free.
A good pick at the current level for investors who are looking at regular dividends with a decent price appreciation.