When it comes to buying dividend stock for a reliable and long-term passive income, it’s best to stick to tried-and-tested companies. Dividend Aristocrats are the best, as they offer high dividend sustainability potential, thanks to their history. There are also dividend companies that have maintained their payouts for years, so even if they are not counted among Aristocrats, they score enough reliability points.
However, you may find some hidden gems if you look outside that “tried-and-tested” pool of dividend payers. This may include stocks that have been condemned by investors for slashing their payouts or little-known stocks that have just started rewarding their investors with dividends. One example of the latter is Alphamin Resources (TSXV:AFM), a $1 billion market cap mining stock at $0.8 per share.
Alphamin Resources claims to have tapped into the most potent tin reserves — i.e., the highest-grade tin mine in the world: Mpama North. The average grade for this tin mine is 4.5%, which is about four times higher than the average. Mining high-grade tin requires less energy and effort than its peers, automatically reducing the cost of operations for the same amount of tin produced.
The bulk of the tin mined in the world is used for soldering. The presence of tin makes the melting point lower, making it ideal for soldering applications where higher temperatures may cause damage to the items being soldered. As a crucial part of virtually every electronic circuit, tin has an ever-present demand. In the last 25 years, tin’s value has risen by about 400%.
The stock and dividends
After years of steady decline, Alphamin Resources started growing after the pandemic and rose by about a thousand percent in less than two years. Even now, it’s trading at a 196% premium to its pre-pandemic peak.
Even though its financials have taken a turn for the worse in the last two quarters, the company is currently modestly undervalued. This may fuel a bullish trend in the future or at least help the stock maintain a healthy level.
The company has only recently started paying dividends from 2022. It paid biannual dividends, first in February and then in August. It has already paid dividends for the first half of 2023, and it’s reasonable to assume that it may continue with the pattern. The payout ratio is quite decent, and at weak financials, it’s a strong sign for dividend sustainability, as it may become even healthier once revenues and income go up.
The most attractive part of the dividends this company is paying is the yield. At 7.5%, its yield is on par with the most generous Dividend Aristocrats currently trading on the TSX.
Small-cap stocks are not preferred for dividend-based passive income, and Alphamin is not just small but new as well. It’s still flying under the radar of most dividend investors, but as more investors flock to it, the stock may gain more momentum. As early birds, you may get to lock in a good yield and enjoy any dividend growth the stock offers in the future.