I Wish I’d Held This Dividend Stock

Selling Labrador Iron Ore Royalty Corp. (TSX:LIF) in 2016 was one of my worst mistakes I have made. But should you buy the stock at its current 52-week high?

| More on:
potted green plant grows up in arrow shape

Image source: Getty Images

Of all the stocks I have invested in over the years, Labrador Iron Ore Royalty (TSX:LIF) is one of the most painful to remember. This is one I held for years before committing the cardinal mistake of selling when the news is the gloomiest, just the time that I should have been buying.

From 2013 to 2016, I held shares of this company. When I first heard of it, LIF was trading for around $30 a share, about the same as where the stock trades today. It seemed like such a good stable, company, one that merely receives royalties from the iron ore produced on its land by the Iron Ore Corporation of Canada (IOC). IOC’s ownership consists of a 58.72% ownership by Rio Tinto, 26.18% from the Mitsubishi, and the remaining 15.1% owned by LIF.

I added to the stock over the couple of years that I held it, continuing to buy shares until I ended up averaging around $12 a share, when I finally sold in the summer of 2016. At the time, after weathering the carnage of the commodity collapse, I felt fortunate to have earned a few dividends and have made a small profit off this company. Looking back, after watching the stock go up more than 100% from the $12 range, I feel a tinge of regret.

For one thing, LIF has a very interesting dividend policy that would have paid off very well if I had continued to hold it. The stock has held its dividend at $0.25 a share paid on a quarterly basis for years now and has not raised it. At my $12 average share price, that would have been an approximately 8% dividend on cost. Even if you buy the shares today, the dividend sits at a reasonable 3.15%.

An interesting fact about the dividend, though, is that the company has a history of paying out special dividends on occasions. While dividend increases to the regular payout have not generally occurred, the special payouts have been quite significant. Last year, for example, LIF paid a special dividend of $0.30 a share in September and of $0.35 a share in December. These added up to total dividends of $0.55 and $0.60 a share, respectively.

These are massive increases to the dividend in those periods and have the added benefit of being paid out only during periods of healthy profitability. They are unpredictable, to be certain, but since they are special dividends, they will not be cut during times of duress.

Although it seems ridiculous in hindsight, the reasons I sold back in 2016 still should be a caution for investors today. The royalty company comes from only one source, IOC, and is from only one commodity, iron ore. This is not a diversified company, so investors should be careful not to make this a large position.

While I am still not very thrilled with commodity companies as long-term wealth builders, there can be a place for them in your portfolio. But the most important message to take away from my experience is the fact that buying stocks with a contrarian mindset can be very profitable. It can be risky, and not every stock will work out, but the returns from buying a selection of commodity stocks at a low point can mean the occasional winner, like LIF, can more than make up for losses on others.

The important fact to remember, though, is not to go all out on any individual position. Have a diversified portfolio but take a few swings at companies with solid balance sheets like LIF and hold them for large profit potential. Would I buy LIF today? Probably not, since it has had such a run. But I will definitely be looking at it when commodities start to fall once again.

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 Kris Knutson has no position in any of the stocks mentioned.

More on Dividend Stocks

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

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

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 3 Fabulous Stocks to Buy Now for Decades of Passive Income

Rogers Communications stock and Canadian Natural Resources stock could pay you dividends for decades to come.

Read more »

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

For growth and dividends this April, look to these two REITs that have quite the promising present as well as…

Read more »