The Deterra Royalties Ltd (ASX: DRR) share price is down 7% after the mining royalty business announced it’s expanding to lithium and it’s cutting its dividend payout.
This company manages a portfolio of mining royalty assets and receives income from them. It looks to acquire new royalties in a “disciplined and value-adding way”.
Lithium acquisition
Deterra announced an all-cash offer to buy Trident Royalties plc for 49p for each Trident share, for a total cash acquisition of £144 million, or A$276 million. The offer was 22.5% higher than the closing price on 23 April 2024.
Trident is a “diversified mining royalty company” that’s listed on the London Stock Exchange. It has a portfolio of 21 royalties and royalty-like offtake contracts providing exposure to lithium, gold, silver, copper, zinc, mineral sands and iron ore.
The board of Trident has announced it intends to unanimously recommend that all shareholders vote in favour of the takeover. So far, Deterra has received support for its offer from Trident shareholders representing 28.7% of the issued shares.
It’s not a done deal yet – it’s still subject to Trident shareholder and court approvals, as well as other regular conditions.
The takeover is targeted for the second half of 2024.
Dividend payout change
The company is adjusting its payouts to balance dividends and capital growth. Over the long-term, that may help the Deterra share price.
Its dividend payout ratio was 100% of net profit and now it’s going to be at least 50% of net profit.
The company also announced it intends to offer a dividend re-investment plan (DRP).
The Deterra Managing Director Julian Andrews, said:
We have a strong history of disciplined capital management, having delivered more than A$480 million of fully franked dividends to shareholders since our listing in late 2020.
While consistent with our well established and overarching capital management strategy, today’s adjustment to our dividend policy is designed to better align it with Deterra’s targeted longer-term balance between capital growth and income returns.
Importantly, our discipline to return capital when not required for investment or balance sheet management remains unchanged.
Final thoughts on the Deterra share price
I’m not surprised some shareholders are uncertain of this news.
It’s expanding into other commodities, which may not be what some investors were expecting. The company is also cutting its payouts, when some investors probably bought it for the generous payout of 100% of net profit.
If the company can deliver growth, then it may be appealing. However, I wonder how many good-returning and high-quality mining royalties there are out there, if the business plans to keep expanding its portfolio?
For me, there are other ASX dividend shares I’d rather buy.
