Holding dividend stocks for an indefinite period of time and reinvesting the dividends can significantly increase wealth. As the distributions from dividend stocks are reinvested, they can generate more dividends, creating a snowball effect that accelerates portfolio growth over time.
BlackRock World Mining Trust(LSE: BRWM) is one such stock for me. It’s a compelling long-term investment and I can’t see myself selling it. Here’s why.
Solid returns
As the name suggests, this specialist FTSE250 The investment fund focuses on the global mining and metals sector, seeking to grow capital and create a reliable income stream supported by the cash flows of its mining portfolio.
The share price has fallen about 8 percent since the beginning of the year as China’s slowing economic growth has led to falling demand for raw materials for manufacturing and construction.
However, the share price is still up about 55% over five years. If you include dividends, the annualized total return over five years is well over 10%, according to AJ Bell.
Broad spectrum of effects
The portfolio is diversified across different regions and commodities, reducing the risk associated with individual companies.
Top 10 investments (as of May 2024):
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Glencore |
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BHP |
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Rio Tinto |
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valley |
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Anglo-American |
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Freeport-McMoRan |
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Newmont |
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Teck Resources |
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Norsk Hydro ASA |
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Agnico Eagle Mines |
In addition, the company has investments in unlisted companies as well as mining licenses and bonds, which provide some income diversification.
Rather than buying individual mining stocks, I prefer this broad spread. There is an ongoing charge of 0.91%, but I think it’s worth it as the trust is managed by BlackRock’s experienced team of experts. They have a deep understanding of the sector and are well equipped to deal with its inherent volatility.
This is important because the mining sector is subject to cyclical fluctuations. Share prices can suddenly fall and dividends are cut during economic downturns.
There is a risk that the yield, currently at 6.2%, will be cut this year, but I expect mining earnings and dividends to increase over time.
The energy transition
As the world transitions from fossil fuels to sustainable energy sources, demand for the metals critical to this transition is expected to skyrocket.
The mining and raw materials sectors will provide the copper needed for electrification, the metals needed to upgrade power grids around the world, the lithium for batteries and the steel for wind turbines. The energy transition is likely to create long-term demand for these mined commodities that will be structural rather than cyclical..
BlackRock World Mining Trust
In addition, existing mines are already at capacity and it is difficult to increase production. It will take some time to open new mines, which suggests that the imbalance between supply and demand could lead to rising prices in the future.
Copper and gold
To give an example, the portfolio is strategically focused on copper, where only limited new supply is coming onto the market, despite increasing long-term demand for electrification.
The price of the metal hit a historic high in May, but demand could double by 2035 as supply is tight. Another focus is gold, which also recently hit a new record, rising to over $2,530 an ounce.
This stock offers a mix of income and exposure to the mining companies that provide the metals needed for the Green Revolution. I plan to hold it forever.
The post 1 FTSE Dividend Stock I Want to Hold Forever appeared first on The Motley Fool UK.
Further reading
Ben McPoland has positions in BlackRock World Mining Trust Plc. The Motley Fool UK has recommended Aj Bell Plc. The views expressed on companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2024
