This big 8% dividend makes me want to buy Glencore shares

At Glencore (LSE: GLEN) share price has fallen in 2023, after a strong 2022. But it rose slightly in the last few weeks, as commodity stocks have gained.

This is a cyclical business, and is closely related to the state of the world economy. And now it’s not very good. So maybe we’ll see a year or two of weakness.

But there are some things about Glencore that I like. And enough to put it on the list of candidates to buy in 2023.

great yield

The main one is the 8% dividend yield. This is the forecast for this year, and roughly the same for next year.

Now, some miners have cut their dividends over the past 10 years.

Glencore has been downgraded several times, the last one in 2020. So, there is no fixed and unchanged income. But the earnings forecast should be enough to cover cash for the next few years.

And the low price-to-earnings (P/E) ratio of only around 6.5 also makes me think that the stock is cheap.

Consensus

Analysts are also bullish on the stock, and there is a strong buy consensus in the City today. However, we have to be a little more careful.

I have seen stocks tipped as a buy just because the trend is going that way. Still, it’s other than the little things that can add up to make the stock look like a purchase.

Commodity prices have fallen slightly since the beginning of last year. And some, like iron ore, are lower than early 2021 levels.

Overall, though, prices have continued to rise quite well over the past five years.

But I just don’t think they’ve reflected the demand we’re going to see in the coming decades and beyond.

short term

In the shorter term, demand may decrease. China, for example, is expected to reduce domestic steel production this year, for the third year in a row. I guess that’s behind the iron ore dip.

So yes, I see a real danger that Glencore’s share price could wobble a bit over the next year or so.

And if global demand doesn’t pick up quickly, I could see the dividend being cut. again.

But for the moment, the company appears to have plenty of capital to spare. At the time of the FY results in February, the board announced a new $1.5bn share buyback.

And for 2022, net debt is down to just $75m. For a company with a market cap of nearly £60bn, I think it’s zero. Now, liquidity seems to be overflowing.

volatile

I don’t think Glencore is good for people who don’t like volatility. The stock price has been volatile over the years, following the stock price FTSE 100 a lot of time.

I also don’t think it’s the best for fixed income from dividends, as it has been up and down over the years.

But for people like me, who reinvests dividends for the long term, I think Glencore can buy.