This is 1 FTSE 100 bargain buy I wouldn’t want to miss

This FTSE 100 share has given spectacular returns in the last two years, as well as dividends, and holds promise for more of both.

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If there’s any proof that patience can really pay in stock market investment, here it is. Two years ago I wrote a bullish article about the FTSE 100 miner Anglo American (LSE: AAL). Curious to see how investors who might have bought it then were faring now, I made a quick calculation. It was heartening to see a 37% increase in AAL’s share price in those two years. That means, shareholders have earned an over 18% return on this share on average every year. 

But here’s what I truly believe is the best part — I think it can still make some smart returns. Here are four reasons why.

#1. Diamonds are forever

Global demand for Anglo American’s products was on the uptick even before the coronavirus vaccine candidates were developed. In its recent update, AAL talked about US and Chinese consumers contributing to increased diamond sales. AAL is the parent company of De Beers, the world’s biggest diamond company. Moreover, it expects “reasonable demand to continue throughout the holiday season”

Both the US and Chinese economies are expected to grow even more in 2021. This suggests that diamond demand should remain strong too. Diamonds are a big revenue generator for AAL, with the third largest share of 16%, among the entire set of commodities produced.

#2. Shining brighter than gold

The share of diamonds is smaller only than that of iron ore and the platinum group metals. Iron has seen a sharp increase in price this year, which is also a positive for AAL. Interestingly, iron’s price rise is even more than the gold price increase, according to a Financial Times report. With an increased infrastructure push in 2021 likely across big economies, I reckon iron will stay in a sweet spot.

Moreover, AAL is optimistic about platinum group metals’ demand. In its annual report for 2019, the company attributed this to expected increased production for cleaner vehicles in the future.

#3. Still a FTSE 100 bargain buy

Despite its prospects, the FTSE 100 multi-commodity miner’s price-to-earnings (P/E) ratio is a relatively low 13.5 times. By comparison, other FTSE 100 stocks have way higher earnings ratios, including Covid-19 vaccine maker AstraZeneca, Primark owner Associated British Foods and speciality chemicals manufacturer Johnson Matthey, among others.

And this is when the AAL share price has already run up quite a bit. Like most other stocks, it has gained from the stock market rally that started this month, accelerating the momentum it had found in the months before. 

#4. Resilient dividends

I also like that it pays dividends. It has a yield of 2.6%, impacted by dividend reduction earlier during the year, but there’s something to say about continuity. Global mining peer Glencore, in contrast, stopped paying dividends altogether. Further, I’m hopeful that the future will be even better for dividends. According to global rating agency Moody’s, AAL’s performance could improve hereon.

As things stand, I see little not to like in AAL for the investor. I’d buy now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of AstraZeneca and Glencore. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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