Glencore (LSE: GLEN) shares have recovered February’s losses this month. Sometimes, trying to buy stocks while they are still falling can be detrimental. However, a recovery of recent losses might be a signal of strength or a possible market overreaction for this FTSE stock.
Over the past three years, the shares are up just under 50%. But prices are relatively the same as they were two years ago.
So, what am I to make of Glencore? Will the share price be shooting higher soon? Let’s take a look.
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The dividend
The company has reduced its dividend in order to repay debt incurred for the acquisition of new metallurgical coal mines from Canadian miner Teck Resources.
The 2024 dividend will be 10.3p, a 70% drop from last year.
The short-term impact on a dividend portfolio is not great, but this acquisition is appealing to me in the long term. Let me explain why.
Cash generator
The agreement will increase Glencore’s annual steelmaking coal capacity by 20 million tons, with a deal anticipated to be finalised by the third quarter of this year.
The business is expected to be highly cash-generative, and cash generation is key for stock investors. It’s how companies can keep compounding their returns to shareholders.
Even though the dividend has been impacted in the short term, this is one reason I think Glencore is one I will add for the long term. The company will be well positioned for large capital returns after that deal closes, and should return to its outperforming ways.
A boost to commodity prices
Falling commodity prices were one negative for Glencore in 2023. When a company’s core product and service is based around volatile assets, it becomes a constant risk factor to factor into an investment. Falling prices will drag profits down.
However, the outlook for commodity prices in 2024 looks positive because China’s demand for metals is stronger than what prices currently show. This is due to China’s increasing focus on clean energy and the limited availability of important resources.
Weighing up the investment
The reduced dividend payout isn’t great. Many people seek passive income, and investors don’t want to see this reduced. Nonetheless, I am willing to look past this short-term setback if I feel there is enough potential for the share price.
The outlook for commodities is good. The business’s restructuring plans could also be another great catalyst for rising share prices.
The volatility will always be higher in a commodity trading and mining company. But I think having some exposure to the industry is good for my diversification.
Despite the risks, I think Glencore has the potential to return a net positive outcome to my portfolio, and I plan to buy its shares soon!
