Readers of my recent piece on Rio Tinto will know that I’m quite fearful over the iron ore market’s supply and demand outlook and consequently the earnings profiles of some of Britain’s biggest mining specialists.
BHP Group (LSE: BHP) saw underlying EBITDA from its iron ore operations rise $2.2bn in the last fiscal year (to June 2019) to a whopping $11.1bn, helped by a bubbly iron ore price which rose almost 10 bucks year-on-year to average $66.68 per tonne.
It’s going to be a hard ask for the resources giant to repeat the trick, though, as slowing activity at Chinese mills pushes prices of the steelmaking component – a material responsible for almost half of BHP’s earnings – to the downside.
Most recent trade data from the General Administration of Customs showed iron ore shipments of 92.86m tonnes into China in October, down sharply from 99.36m tonnes a month earlier and the first drop in four months.
The demand outlook for 2020, not just for iron ore but for the FTSE 100 firm’s other commodities copper, coal, and petroleum, has got a little cloudier following US President Trump’s written backing for Hong Kong pro-democracy protestors on Thursday.
In a scathing riposte, Beijing branded the decision one that’s “full of prejudice and arrogance” and warned of “firm countermeasures.” Any chance of a US-China trade deal being signed off any time soon looks pretty remote, then.
So forget about BHP’s big dividend yield of 6.1% for fiscal 2020 and its cheap corresponding price-to-earnings ratio of 11.2 times. The prospect of sharp share price drops over the coming weeks and months makes this one blue chip to be avoided.
Even bigger yields north of 6%!
Those scouring the Footsie for big-paying dividend stocks might want to consider buying Phoenix Group Holdings (LSE: PHNX) instead. A predicted 46.8p per share annual dividend for both 2019 and 2020 yields a mighty 6.3%, and latest financials this week have reinforced my bullish take.
Quite simply, Phoenix is a bit of a cash machine. In the current year the life assurance colossus has thrown out £707m of cash, already beating its estimated guidance of £600m to £700m and beating 2018’s £664m. This keeps its recent habit of beating forecasts ticking along nicely, though this is not the only reason to celebrate.
In the trading update which detailed those cash stats Phoenix – which buys up and runs off life insurance policies from other providers – also advised that it has it has snapped up £1.1bn worth of illiquid assets so far in 2019, giving it plenty of scope to make big profits later down the line.
What’s more, thanks to the UK’s rapidly ageing population, the opportunities to grow the number of assets on its books looks more than pretty tantalising for the next decade. Trading on a P/E ratio of 14.3 times for 2020 I reckon this firm’s a bit of a bargain.
