While a frothy market doesn’t necessarily equal a full-blown economic downturn, investors should be prepared for an end to the record bull run. When the bear does finally awaken, it’s likely to be nasty, which is why Canadian stock investors should be eyeing safety right now.
The problem is, nobody knows exactly when the bull run will end. The last financial quarter of 2019 was decidedly dicey, though the markets rallied at the last minute.
The year 2020 is already a somewhat different kettle of fish, with uncertainty piling on from all sides. With unrest around the globe and central banks on standby after last year’s round of rate cuts, the first year of the new decade could be a rocky one.
One thing looks certain, though: It’s shaping up to be a good year for metals and mining stocks on the TSX, with precious metals high on the agenda and growth in copper. Luckily, the TSX index is awash with high-quality miners – and what’s more, some of them also pay dividends.
Newmont Goldcorp’s 1.28% yield isn’t bad for long-range investors not necessarily looking for dividends in a gold stock, and means that shareholders looking for a place to stash some cash in a turbulent market have the added bonus of some passive income over the years. However, 2020 investing could be about an entirely different metal.
A good year for copper stocks
Gold dividends offer a blend of safety and income. However, a similar play could be even tastier: Consider copper dividends. With a 1.6% dividend yield on offer and around two-thirds of its revenue sourced from copper, Lundin Mining (TSX:LUN) could be the breakout stock of the year. Locking in that yield now ahead of a copper boom could see metals investors clean up in a relatively short time.
Discounted by more than 66% against its future cash flow value, Lundin is looking at increased income of 30% annually with the potential for 84% total returns within five years.
Stashing $6,000 worth of Lundin shares at today’s prices would theoretically see an investor sitting on an over $11,000 nest egg by 2025. And that’s without a copper bull run, something that could happen if electric vehicles take off.
It’s not just EVs that could drive a copper boom, however. Its use in wiring and building makes it a proxy for both the tech and infrastructure sectors.
As well, growth investors should regard the red metal as a key material in the renewable energy space. Beyond the fact that copper is 100% recyclable, the metal is essential for solar, hydro, thermal and wind energy generating systems.
The bottom line
In short, by snapping up shares in a major copper miner that also pays dividends, TSX investors can tap into the high-growth trend of the recession-resistant green economy, which is likely to be one of the major investment themes of the 20s, while accruing long-term passive wealth.
For TFSA investors looking to grow a nest egg, or retirement planners adding to a cushion of outperforming assets, Lundin Mining is a solid buy.
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 Victoria Hetherington has no position in any of the stocks mentioned.