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This Mining Company Boasts a Huge Profit Margin and a Hefty Dividend

The Motley Fool logo The Motley Fool 2017-10-05 Susan Portelance
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If you are thinking of adding a mining company to your portfolio, there is an iron company you might want to consider. It has a huge profit margin and a dividend yield over 4%. Let’s take a look.

Labrador Iron Ore Royalty Corp. (TSX:LIF) is a Toronto-based company that owns interest in an iron mine in Labrador. Its subsidiary, Iron Ore Company of Canada (IOC), is one of Canada’s largest iron ore producers.

Labrador Iron Ore by the numbers

The stock boasts an almost unheard of profit margin of 92.71% — far higher than the profits of its peers. It also boasts a return-on-equity number of 23.44% — again, making it a leader in its industry. The stock’s trailing earnings per share are $2.09. In August, the company reported second-quarter earnings of $0.50 per share, beating industry estimates of $0.46 per share. It also beat last year’s second quarter by $0.37.

Not all numbers look as good. Over the last three years, revenue has declined by an average of 6.16% per year, where most of its peers have seen growth. Labrador’s earnings have also declined by an average of almost 20% per year over the last three years.

Labrador does have a healthy debt-to-net-equity ratio of 0.30, so the company has far more equity than debt.

For income investors, Labrador offers a current quarterly dividend of $0.25 per share for an annual payout of $1. That gives the stock a yield of 4.97%. The dividend has held steady at $0.25 since 2014. While the cash payout is stable, the yield has varied widely from a low of 1.09% in 2012 to a high of 10.59% in 2014. The company has occasionally paid extra cash dividends, but not since 2014.

What does this mean for you?

While revenues and earnings have dropped in the last few years, Labrador’s profit margin and return on equity show this company does an excellent job of turning investor dollars into profits. The stock also pays a nice dividend if income is part of your goals. If you’d like to add a mining company to your Foolish portfolio, this stock deserves your attention.

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Fool contributor Susan Portelance has no position in any stocks mentioned.

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