One effective strategy in stock market investing is to hold dividend stocks for decades and then reinvest the dividend income, using the power of compounding to maximise the total return on investment.
This long-term investment approach can result in substantial capital appreciation and a growing income stream, making dividend stocks an attractive option for patient investors. On the TSX, a metal stock, Labrador Iron Ore Royalty (TSX:LIF), already yields 9.78% in dividends, but investors may not be familiar with this stock.
The company’s main business is iron ore, which is the raw material for steelmaking. However, the company doesn’t mine iron ore itself; instead, it makes money from its stake in a large iron ore mining company and through royalties, which are payments based on the amount of iron ore mined and sold.
Steel is used in all buildings and infrastructure, from cars to bridges, and as long as there is a demand for steel, there will be demand for iron ore. As a result, the company will continue to profit from a steady stream of royalties.
Over the long term, Labrador Iron Ore Royalty is a stock that can provide steady returns, thanks to increased sales of iron ore pellets and a favourable exchange rate between the US and Canadian dollars, the company’s revenues rose sharply in the second quarter, earning C$52.3 million in royalty revenues, and its earnings per share (EPS) came in at 0.78 CAD, up 20 per cent year-over-year.
The company also received a hefty dividend of up to C$41.5 million from its partner, Iron Ore Company of Canada (IOC), more than double the dividend paid in the same period last year, underscoring its ability to reward shareholders. It also means that the stock has been able to provide stable returns even during the ups and downs of the iron ore market.
Labrador Iron Ore is in a very strong financial position, with C$67.7 million in cash and no debt. As a result, there is a lot of flexibility to continue paying dividends and potentially invest in future growth opportunities.
What’s more, the company retains almost all of its profits, with a profit margin of 99.70 per cent, while also paying out a large portion of its earnings as a dividend. Its current dividend yield is a whopping 9.78 per cent, which translates to an annual dividend return of C$9.78 for every C$100 invested.
