Iron Ore Is Booming: This Stock Is up 30% Since January

Labrador Iron Ore Royalty Corporation (TSX:LIF) is still strong with a 9.8% effective dividend yield this year and good upside.

| More on:

The story out of China is not only about strong economic growth, but also about the drive to turn to “cleaner” industry to combat the country’s escalating smog and air quality problem.

In 2017, GDP growth is expected to hit 6.8%, which represents an acceleration from 2016 and is above most analysts’ expectations; 2018 should see similar growth levels.

And being the world’s largest steel producer, China has seen conflicting pressures from the strong demand for steel on the one hand, and the pressure to cut steel production to improve air quality on the other hand. The government has actually been trying to curb steel production, although it does not appear to have put pressure on the price of iron ore.

With that backdrop, let’s look at iron ore, which is one of the key ingredients in making steel.

The price of iron ore has increased nicely since the beginning of 2016, and it currently stands at approximately $63 per tonne. In February, the commodity was trading at almost $95 per tonne, but it dropped as fundamentals deteriorated in the form of increasing supply and worries of weakening demand.

This compares to lows of approximately $40 per tonne back in 2015. In its heyday, iron ore hit highs of over $180 per tonne.

These facts are of utmost importance to iron ore producers and stakeholders, such as Labrador Iron Ore Royalty Corporation (TSX:LIF), Rio Tinto plc (NYSE:RIO), and BHP Billiton Limited (NYSE:BHP), whose shares have year-to-date returns of 30% (LIF and RIO) and 16% (BHP).

Strong third quarter for Labrador Iron Ore

Production increased 5.5%, pricing increased 41%, and although costs were higher than expected, it was generally a solid quarter.

Earnings per share increased 109% to $0.69, and cash flow per share increased more than 200% to $0.84, reflecting mostly the pricing increase, but also the increased production.

And being a royalty company, Labrador Iron Ore has lower risk inherent in its business model, with the company’s objective being to return extra cash to shareholders in good times, as has been done in this past year.

So, with cash of $64.9 million on its balance sheet, no debt, and a good record of paying special dividends, investors can feel reassured that their income will be rising along with the company’s fortunes.

And while the company’s regular quarterly dividend is $0.25 per share, the company has already paid out $2.10 in dividends so far this year for an actual dividend yield of 9.8% based on today’s share price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in the companies mentioned.  

More on Dividend Stocks

Growing plant shoots on coins
Dividend Stocks

2 Under-the-Radar Dividend Payers With Solid Growth Prospects in 2024

These under the radar monthly dividend payers could provide good growth prospects in 2024 and beyond.

Read more »

Question marks in a pile
Dividend Stocks

Should You Buy BMO Stock for its 5.2% Dividend Yield?

BMO stock has outpaced the broader markets in the past two decades. But is this blue-chip TSX bank stock a…

Read more »

data analyze research
Dividend Stocks

Better Dividend Stock for Passive Income: NorthWest REIT or Nexus REIT?

These two dividend stocks offer passive income above 8%, but which is the better (and safer) buy on the TSX…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

3 Top Canadian Royalty Stocks With Dividend Yields Averaging 5%

Canadian royalty stocks can provide a lucrative income for investors. Here are three great options to consider buying right now.

Read more »

Dividend Stocks

Is Enbridge Stock a Buy Just for the 7.7% Dividend Yield?

Enbridge is moving higher after a prolonged pullback. Has the stock bottomed?

Read more »

Man considering whether to sell or buy
Dividend Stocks

TD Stock: Buy, Sell, or Hold?

TD stock (TSX:TD) plunged as the company looks to have more expenses on the books for the next year. So…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

These 3 Canadian Dividend Stocks Are a Pensioner’s Best Friend

Consider adding these three TSX dividend stocks to your self-directed retirement portfolio if you want to boost your pension with…

Read more »

dividends grow over time
Dividend Stocks

Earn Passive Income With This 7.6%-Yielding Dividend Stock 

A 7.6% dividend yield is generally opportunistic when dividend stocks are down. But what if you could lock in a…

Read more »