Dividend investors looking for a bargain should check out Sibanye Gold (NYSE:SBGL). Sibanye's share price took a body slam from the Hulk recently, because of the stronger dollar and the rise in interest rates. The company's share price today is $6.69, up a bit.
What's intriguing about Sibanye is its 5.5% yield, along with its recent $2.2 billion acquisition of Stillwater Mining. The acquisition of Stillwater means Sibanye continuing to transform itself from solely a gold producing company to a platinum-group metals producer. Two prior acquisitions in 2015, the Rustenburg mine from Anglo American Platinum and mines from Aquarius Platinum, began the transformation.
Buying Stillwater was a good move on Sibanye's part, not only because of Stillwater's platinum-group metal mines, but because of Stillwater's catalyst recycling operations, which provide substantial yearly cash flow. During the third quarter of 2016, Stillwater's recycling revenue was $89.6 million. And then there's the fact that during 2016 the price of palladium rose 15% and the price of platinum rose 5%.
Sibanye asserts that industrial demand for palladium is healthy and will continue to increase for the next five years. Digital Journal stated: "The global market for palladium is likely to experience significant growth with declining demand for metals and increasing demand for recycling metals, leading to palladium demand outstripping the supply." Palladium's usages include chemical and dental functions; its primary demand comes from auto makers, where it is used in catalytic converters.
Even if the price of gold drops further, Sibanye's position remains healthy as the company can sustain profitability at a price of $970 per ounce. Thus, unless the price of gold plummets to unforeseen depths, Sibanye should maintain its margins. And if gold does the unthinkable, the company will remain financially healthy because of the rising demand for palladium and its newly acquired catalyst recycling operations, especially since catalyst recycling produces cash flow based on spot palladium prices. Sibanye is strategically positioned to sustain solid margins.
Sibanye's dividend track record is impressive. In November 2013, the company's dividend was $0.111; in September 2016, the dividend was $0.186. The company's management is committed to maintaining its dividend yields. According to management, the Stillwater acquisition will allow the company to continue to make dividend payments at the 5.5% level. It should be noted that during 2016, Sibanye's yield was 6.2%.
The purchase of Stillwater should be finalized during the second quarter of 2017. Some analysts are concerned about the $2.2 billion price tag for Stillwater, wondering if Sibanye can raise the cash for the deal. To fund the deal, Sibanye is planning a rights offering in 2017. The offering will provide $750 million, resulting in the company's EBITDA dropping from 2.2x to 1.5x. As long as Sibanye keeps a careful eye on its balance sheet, it should be able to sustain high dividend payments.
Analysts expect Sibanye's earnings per share to increase 56% in 2017. The average price target set by analysts is $14.
Based on Sibanye's acquisition of Stillwater and its catalyst recycling operation, and the continued increasing industrial demand for palladium, Sibanye looks set to grow during 2017, especially when the assets from Stillwater come online.
Dividend investors should get in now, while the share price is depressed. Expect slow growth the first half of 2017, then more rapid growth during the second half of 2017. And investors should expect Sibanye's valuation to increase as 2017 progresses. Dividend payouts should continue near the 6% mark.
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