Boost Income and Growth With This Very Juicy 9% Yield

Favourable market conditions and growing production will support Labrador Iron Ore Royalty Corp.’s (TSX:LIF) special dividend payments and its 9% yield.

| More on:

Seeking to accelerate wealth creation? Then look no further than Labrador Iron Ore Royalty (TSX: LIF), which, after allowing for its special dividends, has a trailing 12-month dividend yield of almost 9%.

Improved market conditions

Labrador Iron Ore is not engaged in the hazardous activity of mining but rather owns a 15.10% equity interest in Iron Ore Company of Canada, which is a subsidiary of global mining giant Rio Tinto. Iron Ore Company of Canada is engaged in the mining and processing or iron ore at its facilities in Newfoundland and Labrador. It has the capacity to produce 18 million tonnes of iron ore concentrate annually.

Labrador Iron Ore receives a 7% gross overriding royalty and a $0.10 per tonne commission on all iron ore products produced, sold and shipped by Iron Ore Company of Canada. The company has benefited from the spike in iron ore prices caused by diminished supply after Brazilian iron ore mining giant Vale’s tailing dam collapsed at its Brumadinho operation in Brazil. That event caused spot prices to spike to over US$90 per tonne, and the price has been climbing every higher to be US$120 per tonne on July 18, 2019.

The outlook for iron ore is quite bullish for a range of reasons, aside from diminished supply. According to analysts at Citibank, a combination of supply constraints, robust Chinese steel demand, and increased industrial activity in China will support prices at over US$100 per tonne. Recent news that a full-blown trade war between the world’s two largest economies, China and the U.S., has been averted supports that thesis.

Growing production

This is good news for Labrador Iron Ore, which, for the first quarter 2019, reported that revenue had popped by 14% year over year while cash flow was 23% higher, and net income had shot up by an impressive 30% to $0.69 per share.

As a result, Labrador Iron Ore declared total dividends for the first quarter of $1.05 per share comprised of is regular $0.25 dividend and a special dividend of $0.80. For the second quarter, the company announced a special dividend of $0.65, bringing the total payment to $0.90 per share.

Higher production at Iron Ore Company of Canada, along with firmer iron ore prices, will support additional special dividend payments.

You see, 2018 iron ore production was impacted by a nine-week labour stoppage at Iron Ore Company of Canada’s operations during the second quarter 2019. First-quarter production of 4.2 million tonnes was 5% greater than the equivalent period in 2018. The combination of productivity improvements and an additional pit coming online by the third quarter 2019 will support further production growth, thereby boosting earnings.

With iron ore hovering at around US$120 per tonne and Iron Ore Company of Canada’s production expanding, it is expected that Labrador Iron Ore will reward shareholders with further special dividends over the remainder of 2019 and into 2020.

Foolish takeaway

That bodes well for investors to be able to collect a juicy yield of around 9%, while the company’s stock appreciates in value. Labrador Iron Ore has gained 43% since the start of 2019, and it isn’t difficult to see further modest gains because of the favourable environment for iron ore, making now the time to buy.

Fool contributor Matt Smith has no position in any of the stocks mentioned.

More on Dividend Stocks

crisis concept, falling stairs
Dividend Stocks

This Canadian Dividend Stock is Down 15%: Should You Buy the Dip?

This company has increased its dividend annually for the past 26 years.

Read more »

Hourglass and stock price chart
Dividend Stocks

The Most Boring Stock on the TSX Might Be One of Its Smartest Buys

CNR stock does not offer explosive growth or a massive dividend yield. However, its stability and track record can make…

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

3 Canadian Dividend Giants I’d Buy With Rates on Hold

Focusing on dividend giants while interest rates are on hold is a prudent strategy for income investors.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

These 3 Canadian Dividend Stocks Are Great for Retirees

Given their strong financials, consistent dividend payouts, and healthy growth prospects, these three Canadian stocks are ideal for retirees.

Read more »

rising arrow with flames
Dividend Stocks

The Market’s On Fire — But Should You Be Buying Right Now?

Despite the hot market, investors could still invest selectively in quality businesses. Diversify and dollar-cost average over time to mitigate…

Read more »

man with shovel stands by a hole
Dividend Stocks

TD Just Put $150 Billion Behind Canada’s Next Investment Boom. Should You Buy the Stock?

Instead of betting on which mega-project wins, consider a picks-and-shovels play on the bank that earns interest and fees on…

Read more »

telecom towers concept for wireless technology
Dividend Stocks

Bell Just Made a $52.5 Billion Bet on AI. So Is BCE Stock Finally a Buy?

BCE’s ambitious AI hub plan could reinvent the telecom’s growth story, but it first requires years of heavy spending.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

Canada Just Cut the Tax on New Investment Nearly in Half: This TSX Stock Could Win

Canada’s new tax write-off could quietly drive more investment than any single mega-project announcement.

Read more »