The Iluka Resources Ltd (ASX: ILU) share price has climbed 31% in the last three months and 5% just yesterday – is it a buy?
Iluka is a resources and mining company focused on minerals zircon, rutile and synthetic rutile which are used in ceramics, pigments and optical equipment, among other uses. Headquartered in Perth, Iluka has been operating for over 60 years, and currently operates in Australia and Sierra Leone.
Since the beginning of 2019, Iluka shares have risen about 31%. This has been helped along by a positive quarterly report showing an increase in revenue of 29% despite falling sales. This was largely the result of higher zircon and rutile prices.
However, Iluka shares are actually down over the six-month period by 5.3%. The current share price of $9.47 is still down from $10.14 six months ago. Although Iluka shares have performed well over the last three months, they actually show negative results over the six-month, one-year and five-year periods.
Dividends
Iluka currently offers a dividend yield of 3.2%, but this hasn’t been consistent over the listed life of the company.
From around 1999 to 2007, dividend distributions were very reliable at approximately 22 cents per share (cps). Since then, dividends have been up and down, mostly following the share price. In 2011, they paid 28cps, then 80cps in 2012 followed by 15cps in 2013. They paid 35cps in 2018 and just 6cps in 2017. There are definitely better options for dividend income.
The Positives
In their full-year 2018 report, Iluka reported underlying group EBITDA of $600 million, up 67% year-on-year. They also reported operating cash flow of $594 million and free cash flow of $304 million. This might signal that the dividends are going to be more stable over the coming years.
Summary
While the recent capital gains may seem tempting, this is a resources company and is always going to be subject to commodity prices and supply/demand. In 2019, Iluka has forecast lower sales of zircon and synthetic rutile, so its 2019 results may be noticeably lower than in 2018.
If you’re looking for stable dividend income, there are better options than Iluka. And if you’re looking for capital gains, you might be better off with the growth shares in the free report below…
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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.
