Deterra Royalties Ltd (ASX: DRR) presents an intriguing opportunity for income-focused investors with its current high dividend yield and solid fundamentals. The company's share price has recently retreated to $3.81, accompanied by a generous trailing yield of 8%.
Why Deterra Royalties Stands Out
Deterra Royalties is a prominent player in the mining sector, with a diverse portfolio of assets. Its flagship asset is the Mining Area C iron ore project, which is operated by the major mining company BHP (ASX:BHP) Group Ltd (ASX: BHP).
In 2024, Deterra’s share price has faced a notable decline, dropping approximately 30% from its peak of $5.41 in February. This decline followed two key updates: the acquisition of Trident Royalties Plc in June and a strategic shift in its dividend policy from a 100% payout of net profit to a minimum of 50%.
Despite these changes, analysts remain optimistic about Deterra’s long-term potential. UBS analysts have maintained a positive outlook, rating the stock with a target price of $4.90, indicating a potential upside of 29%. Similarly, Goldman Sachs (NYSE:GS) has upgraded its rating from hold to buy, setting a target price of $4.70 per share. Goldman Sachs highlights Deterra’s robust balance sheet, including a net cash position of $30 million and a $500 million debt facility.
Dividend Prospects
The shift in Deterra’s dividend strategy does not diminish its appeal for income investors. UBS projects payouts of 31 cents per share for FY 2024 and 16 cents per share for FY 2025. At the current share price, these projections correspond to yields of around 8% and 4%, respectively. Goldman Sachs also anticipates strong free cash flow and substantial dividend yields, reinforcing the company's attractiveness for dividend-focused portfolios.
The revised payout policy is seen as a strategic move to allocate cash towards acquiring additional assets, potentially enhancing future royalty income and supporting higher dividends in the long term.
Deterra Royalties offers a compelling investment proposition with its current dividend yield and potential for share price recovery. The company's solid financial foundation, valuable asset base, and strategic acquisitions position it as a notable contender in the ASX dividend space. As always, conducting thorough due diligence and consulting with a professional investment advisor is recommended to ensure alignment with individual investment goals.