With the ever-expanding global economy and the transition away from fossil fuels, the demand for metals like copper, iron ore, and nickel continues to grow. The global mining industry is estimated to grow at a 12.9% compound annual growth rate (CAGR), reaching a whopping $3.36 trillion by 2026.
And given the cyclical nature of the mining industry, investing in mining stocks can turn out to be a major investment opportunity.
However, it can get overwhelming to decide which stock to invest in. To ease your confusion, here’s an overview of the three best mining stocks that pay high dividends.
Top 3 Mining Stocks With High Dividend Yields
1. BHP Group Limited
BHP Group Limited (NYSE: BHP) is an Australian company headquartered in Melbourne. It is the world’s second-largest mining company after Glencore. BHP has been in the mining business since 1885 and mines copper, zinc, silver, gold, uranium, molybdenum, iron ore, and energy coal.
The company was previously in the business of extracting oil and gas as well, but it merged those assets with Woodside Petroleum (NYSE: WDS) in early 2022 and became a purely mining company.
During the first quarter of the year, the company produced around 60 million metric tons of iron ore and around 370,000 tonnes of copper. While copper production was up by 1%, iron ore production decreased by 10%. However, the company has seen a rise in the production of thermal coal and metallurgical coal by 13% and 20%, respectively.
BHP offers a dividend yield of approximately 13.69%, which means a yield of more than 5% if you take inflation into account. The company has recorded dividend growth for the past five consecutive years with a CAGR of 45.3%.
The company has a low-cost operation policy and a strong balance sheet. BHP sells off any assets and mines that are less profitable. The company also pays out 50% of its profit in dividends. With a cash flow of around $24.1 billion in 2021 and around 4.7 million shares traded on average each day, the stocks seem promising.
2. Rio Tinto
Headquartered in London, Rio Tinto Group (NYSE: RIO) is the leading producer of the three most-consumed metals — copper, iron ore, and aluminum. Along with these, the company also explores, mines, and processes other minerals and metals like diamond, salt, titanium, and boron.
The company’s revenue depends on iron ore production, which accounts for 66% of the company’s income. In September 2022, the company entered a joint venture for iron-ore production with Baowu, China’s biggest state-owned steelmaker. The project is set in Western Australia and is expected to have a 25 million tonnes maximum annual capacity. Rio Tinto is the majority stakes owner of this project.
The company offers a dividend yield of around 11%, which is a yield of 5.12%, considering the current high inflation rate. Similar to BHP, Rio Tinto, too, has recorded dividend growth for the past five consecutive years with a CAGR of 36%. In 2021, Rio Tinto’s share price fell by 36.45%, which may be another reason for the high yield.
Rio Tinto has time and again proven that it can make a profit even when the market conditions are weak. The company has a strong balance sheet and is quick to switch strategies when a mine is not delivering enough profit. The company pays 40-60% of its cash flow in dividends.
3. Southern Copper
Southern Copper (NYSE: SCCO) is a company based in Phoenix and is involved in the production of copper and molybdenum from Mexico, Peru, Chile, Argentina, and Ecuador. It also mines silver and zinc.
In 2021, the company produced 965,000 tons of copper and 66,958 tons of zinc. The first quarter of 2022 saw Southern Copper selling approximately 208 million tons of copper, which is less than the last year by 13.4%.
Although the company’s copper production in 2022 was off by 4% compared to that in 2021, 2023 seems to be more promising, with an estimated copper production of around 1 million tons. The company also expects to achieve 1.8 million tons produced by the end of the decade.
The company has a dividend yield of 6.43% and had a cash flow of $3.47 billion in the past four quarters. Southern Copper pays high dividends and has strong revenue growth, making it an excellent investment opportunity.
For investors with long-term perspectives, investing in mining stocks seems very promising as the world looks forward to greener resources. BHP Group, Rio Tinto, and Southern Copper are three companies that offer higher yields and are thus worth investing in.
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