If you wish to buy stock in a company that is in the natural resources business, always determine the company’s biggest commodity and the outlook for that commodity. If the outlook is good, growing then you can be happy about making a good decision. If the outlook for the commodity is indifferent, then wait because the profits of the company depend on the commodity price.
In an article by Praveen Menon of Reuters, the world’s biggest miner of iron ore and other minerals, the Anglo-Australian miner Rio Tinto reported its best ever annual profit and a record full year dividend of $16.8 billion boosted by higher iron ore prices and strong demand from top consumer China.
CEO Jakob Stausholm noted the balance sheet is the strongest it has been for 15 years. Rio Tinto declared a special dividend of 62 cents a share and a final dividend of $4.17 a share. A year ago, the dividend was $3.09 a share.
China which accounts for more than half of Rio’s revenue said it would prevent excessive hoarding of iron ore.
Linking to dividend paying stocks, commodity based stocks are wonderful when the price is high, but similar to most things in life diversification matters when the price goes down. Unless you develop a habit of following the underlying commodity, find companies where you can easily folllow the prices of the inputs and has the ability to raise prices when commodity prices increase.
There are more questions than answers, till the next time – to raising questions.