Glencore is a FTSE 100 dividend share yielding 5% that’s absurdly cheap right now
The Motley Fool
Published Jan 01, 0001 00:00
Updated Sep 18, 2018 13:30
The outlook for Glencore (LSE: LON:GLEN) continues to improve. The company has been able to put in place a refreshed strategy in the last few years which has strengthened its financial standing. It also has the potential to benefit from a tailwind in the resources sector, with world economic growth expected to remain high over the medium term.
Despite this, the stock has a relatively low valuation. This could make it more appealing than the FTSE 100, as well as a number of other shares that seem to now lack margins of safety. One example of such a stock released an investor update on Tuesday.
High valuation The company in question is specialist filtration and environmental technologies company Porvair (LSE: PRV). It released a trading update that showed it has made good progress in the first nine months of the year. It has achieved revenue growth of 8%, with underlying revenue being 11% up on the same period of the previous year. The company’s order book remains healthy, while the acquired Keystone Filter operations are being successfully integrated.
The problem facing investors, though, is that the Porvair share price appears to be overvalued. It trades on a price-to-earnings (P/E) ratio of around 28, which suggests that it lacks a margin of safety. And with its bottom line due to rise by 3% this year and 5% next year, it seems to lack a clear catalyst to push its stock price higher. As such, it appears to be a stock to avoid at the present time on valuation grounds, even though it is performing well from a business perspective.
Low valuation In contrast, the Glencore share price seems to offer excellent value for money. It has a P/E ratio of just 9, which suggests that it has a wide margin of safety. This could be useful if the world economic outlook deteriorates over the next few years. With tariffs being put in place by the US, China and EU, the prospect of a full-scale trade war remains high. This could hurt the performance of the FTSE 100, and cheaper stocks could therefore be less affected. And while there are regulatory risks facing the company, the stock market appears to have priced them in.
With Glencore having a dividend yield of over 5% at the present time from a payout that is covered 2.3 times by profit, it seems to have income investing potential. Although its business model may still be subject to the ups-and-downs of the resources industry, it has been able to reduce debt in the last few years. Alongside asset sales, this has strengthened the company and could provide it with greater financial resilience during a downturn.
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Since the stock is due to post positive earnings growth over the next two years, now could be a good time to buy it. At a time when a number of shares both inside and outside of the FTSE 100 are trading on high valuations, Glencore seems to offer an impressive investment outlook.
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Written By: The Motley Fool
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