Australia | Sep 14 2007
By Chris Shaw
Dividend stripping has been a popular strategy among income seeking investors for some time but until recently it was primarily confined to the major banks given the above market yields they offered.
But with the ongoing surge in commodity prices companies in the mining sector are now coming to the party and using their significant cash flows to deliver solid dividends to shareholders, a prime example being zinc miner Zinifex (ZFX).
The warrants team at ABN Amro sees scope for the stock to be an attractive dividend play leading into the stock going ex-dividend a fully franked 70c on October 30, a payout that represents a yield of 4.4% on this one dividend alone.
The broker points out there are currently 47 days until the ex-date, meaning the 45-day holding rule for taking advantage of franking credits is satisfied and with the stock having recently pulled back from highs of around $21.00 the shares appear reasonable value.
A look at the long-term chart of the stock supports the broker’s view the play has potential as the shares remain in a long-term uptrend and it has done well as a dividend play on both of its last two payouts. The stock is also trading below the broker’s valuation of $16.49, which is around 15% below its target price of $18.50.
The broker rates the stock as a Hold, while the FNArena database shows two Buy ratings, two Sells and six Hold recommendations overall. The average price target is $18.10.
Those interested in the stock as a dividend play are advised by the broker to consider the warrant ZFXJZI, which has a strike price of $17.00 and runs through to April next year. It estimates on standstill performance buying exposure through the warrant would generate a return of 15%, on an outlay of around $3.80 for the warrant.
Shares in Zinifex are stronger today and at 12.30pm were up 35c at $16.14.