Even on the most beautiful Canadian summer days, investors can’t help but notice when a dividend stock catches fire, and not always in a good way. Labrador Iron Ore Royalty (TSX:LIF) has dropped more than 12% over the past year, and its most recent earnings didn’t exactly spark joy. Yet, long-term holders are still smiling thanks to a double-digit dividend yield and a rock-solid balance sheet. So the big question is, with shares now trading just above $26, is this a great time to buy the dip, or a sign of more trouble to come?
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Recent drop
First, let’s unpack the recent weakness. Labrador Iron Ore earns royalty revenue from the Iron Ore Company of Canada (IOC), which it partially owns. IOC had a rough start to 2025. Royalty revenue in Q1 2025 dropped 36% year over year to $35.6 million, and equity earnings plummeted from $34.3 million to just $3.3 million. Net income per share was $0.33, down from $0.93 a year ago, and adjusted cash flow fell to $0.31 per share, well below the $0.49 posted in Q1 2024.
The culprit? Falling iron ore prices and significantly lower sales tonnage. IOC’s total sales dropped 26% in the quarter, with pellet sales down 12% and concentrate for sale (CFS) volumes down a stunning 43%. Combine that with a 14% drop in the benchmark iron ore price to US$117 per tonne, and you’ve got a double hit to both volume and price. Pellet premiums fell too, thanks to weak European demand and oversupply, dropping to US$35 per tonne from US$40 the year prior.
But here’s where things get interesting. Despite the revenue crunch, LIF still declared a $0.50 dividend per share in the first quarter, higher than the $0.45 paid in Q1 2024. Its trailing dividend yield now stands at 11.5%, with a forward yield of 8.5%. Yes, the payout ratio is technically over 143%, which looks unsustainable at a glance. Management clarified that it uses “adjusted cash flow” to determine dividend payouts, and the company has no debt and nearly $20 million in cash. Right now, even a $5,000 investment could earn $416 in annual dividends.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| LIF | $26.93 | 185 | $2.25 | $416.25 | Quarterly | $4,982.05 |
Considerations
Now, is there more downside ahead? Possibly. Iron ore prices remain under pressure due to geopolitical tensions, particularly the latest round of U.S. tariffs, which could ripple through global steel demand. IOC sells about 11% of its production to the U.S., mainly as direct reduction pellets. If those are hit by tariffs, volumes could fall further. On top of that, China’s property market continues to drag on steel demand, and seaborne supply is expected to rise as Brazil and Australia ramp up shipments post-weather disruptions.
Still, it’s not all gloom. IOC’s full-year production guidance remains unchanged at 16.5 to 19.4 million tonnes, above last year’s 16.1 million. While Q1 is usually the weakest due to weather, volumes are expected to rebound in the second half of the year. Importantly, IOC continues to invest in its infrastructure, with US$342 million in capital expenditures planned for 2025 to improve reliability and production efficiency.
For income-focused investors, LIF remains attractive. It doesn’t carry the operating risk of a miner; its revenue is a cut of whatever IOC produces and sells, with no exposure to debt or operating costs. It’s essentially a cash machine tied to global iron ore demand. While short-term headwinds exist, LIF’s long history of paying juicy dividends through cycles suggests the model works.
Foolish takeaway
So, should you buy the dip? If you’re hoping for quick capital gains, maybe not. There’s still a lot of uncertainty in global steel markets, and IOC’s sales volumes may remain choppy for another few quarters. But if you’re building a passive income portfolio and can stomach a bit of volatility, LIF offers one of the highest-quality, high-yield dividend plays on the TSX. Its 11.5% trailing yield is rare, and it’s backed by real cash flow, not financial engineering. In other words, this dip might not be a fire to run from, but a spark worth watching.
