If sky-high yields are a sign of deep lying problems, then many FTSE 100 mining stocks are in double-digit trouble. The income looks terrific, but dont let that fool you.
One look at the yield shows thatdiversified mining operationAnglo American (LSE: AAL) is in big trouble. It currently offersaninsane 14%, the highest on the FTSE 100. Although the dividend is apparently covered twice, it cant last for long at that inflated rate.
Anglo Americanstroubles only intensify with each passing day. It was a deepholelast week, and since then it has fallen a further 10%, following last weeks decision to closeits Drayton coal mine in Australia after the New South Wales authoritiesrecommended the government block itsexpansion.
Falling Chinese demand is at the root of the commodity sectors problems, and fears on this front are only intensifying, as Tuesdays figures showing Chinese, US and UK manufacturing PMIs all falling. Forecast iron ore and copper forecast prices for 2016 suggest little respite for Anglo-American, which has also been hit by platinum losses.The dividend survivedJuly, despite a36% drop in half-yearunderlying EBIT to$1.9 billion, but it may fall at the next dividend review, which is scheduled for February. Even at a lowly 3.5 times earnings, I hesitate to recommend this stock.
BLT Past Sell-By Date
Diversification hasnt helped global mining giant BHP Billiton (LSE: BLT), either. It is down 7% over the past week and 39% over six months. A bad year turned into disaster afterthe fatal dam burst atits Samarco Minerao SA joint venture with Brazilian miner Vale SA. The minesoperating licence has now been suspended and BLT and Vale are on the hook for clean-up costs, including a 3.4bn fund forenvironmental recovery and compensation.
BHP Billiton is yielding double digits at 10.19%. Dare you tryto lock into that? Management actually increased the dividend in the summer by 2.5%, despite a sharp fall in profits. Cutting costs and capex self-management have supportedthe annual $4bn payout so far, but itmust surely come under pressure if metal prices fall further.
Now And GLEN
I have saved the worst for last. Glencore (LSE: GLEN). Its share price is down 66% in the last six months, although the falls have flattened out after it signed adeal to buy Libyan oil exports to help offset declining profits from mining. Libya? Management must livefordanger.
Glencore is currently listed as the second highest yielder on the FTSE 100 after Anglo Americanat12.25%, but dont be fooled.It suspended its payment in September to helpit tackle the more urgentissue of its $30bn debt pile. The decision was made barelythree weeks after managementsaid it could continue to pay a dividend, which should alert anybody considering investing in stocks with sky-high yields. They can be cut at any time. Buyers of Anglo American and BHP Billiton beware.
There are far more sustainable yields on the FTSE 100, if you know where to look.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.