Early in the year, I sold my holdings of the FTSE 100 dividend stock Glencore (LSE: GLEN) at a neat profit. But my joy from this was short-lived. The stock has rallied in 2022. Just from the start of the year to now, it has gained some 38%. This amounts to a 77% rise over the past year. If I had waited a while longer, my gains would have been much bigger.
Glencore could see a continued share price rally
But I reckon that if I still invest £1,000 in the the stock, I could still earn good returns. With commodity prices on a roll, the stock is expected to see a rise in earnings this year. According to my calculations based on expected earnings for the year, the company’s price-to-earnings (P/E) ratio is around a low five times. The ratio will change depending on the forecast considered, but I reckon this gives a broad idea of where we are at. Clearly, this indicates that its price is likely to rise.
A lucrative FTSE 100 dividend stock
This should also reflect on its dividends. At present it has a dividend yield of 3.7%, which is slightly higher than the 3.5% average for the FTSE 100 as a whole anyway. But I think its yield still looks relatively low because of its fast rising share price. If I had bought the FTSE 100 dividend stock a year ago, for example, the yield would be 6.8% for me right now.
Dirty business
The stock is not without its challenges, though. The run-up in commodity prices could be limited as long as the Russia-Ukraine war lasts. Demand can slow down too. Yesterday, the IMF reduced global growth forecasts, suggesting the same. It is little surprise then, that analysts expect a drop in the company’s earnings next year. That, in turn, could affect is share price.
Another big potential stumbling block for Glencore is its high dependence this year on coal mining to generate rising profits. At a time when other miners are hiving off their ‘dirty’ business divisions, the Swiss miner and marketer’s case looks glaring. I do not see this going down very well with investors at a time when there is rising focus on ethical investing.
Funnily enough, though, the company has a high environmental, social, and governance (ESG) ranking. This suggests that it is not doing all too badly in addressing issues important to investors, though it has been accused of “greenwashed propaganda”. Moreover, someone needs to still do the job of mining coal, especially now when inflation is high. We might not like it, but it might just be required. I think it is a matter of time before it moves its focus away from its polluting businesses, though, as per its own plans.
What I’d do
All in all, I think it still makes a good stock for me to buy for £1,000 for both its dividends and the capital growth it offers for the next year or so. Over the medium-term, though, I think it could be a bit more sluggish as the commodity cycle peaks this year. I will think this through before buying the FTSE 100 dividend stock for the next three to five years.
