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Glencore (LSE: GLEN) was among the top performers FTSE 100 index over the past two years. The Swiss-based commodities and mining trader has benefited from the energy crisis sparked by the Russia-Ukraine war, as well as the devastating effects of the pandemic on commodity markets.
In addition to the growth in Glencore’s share price, long-term investors also received significant passive income thanks to the bumper dividend yield. At present, the stock yields 9.28% annually. This is well above the FTSE average.
So, if I had invested £1,000 two years ago, what would I have today? Let’s explore.
Two years return
In February 2021, the shares were trading for 300.15p each. Today, the company’s share price has ballooned to 512.10p. That’s an impressive 70% gain over 24 months.
I have never bought Glencore shares before. However, if I had invested a lump sum of £1,000 two years ago, I could have bought 333 shares, leaving 50p as extra change.
My initial investment would be worth £1,705.29 today. But there is more good news. Factoring in the dividend payments over that period, I can add £142.74 to the total.
Assuming I don’t reinvest dividends, two years’ return from a £1k investment would leave me with £1,848.53 today. Basically, I would have almost doubled my money!
Glencore stock outlook
Glencore has been an excellent investment over the past two years. But what about the coming years?
Well, the company still looks cheap at today’s valuation despite recent astronomical returns. A P/E ratio of just 4.67 indicates potential for future growth. In addition, the new $1.5 billion share repurchase program should continue to add shareholder value.
Coal has been a major driver of earnings growth. Adjusted EBITDA rose 60% to $34 billion, and more than half came from the coal mining business. EBITDA for that unit more than tripled to $17.9 billion.
Although the decision to resist pressure to become greener has rewarded the company handsomely, I believe this presents a risk to future earnings prospects as governments strive to replace fossil fuels with clean energy solutions.
The company has long-term plans to exit the coal market. However, it maintains guidance to keep production at 110 million tons for the next few years, which shows that it is in no rush to do so. After the impressive returns, it’s important to note that Glencore expects 2023 earnings to be lower with lower coal prices this year.
However, I like the company’s investments in energy transition metals, including nickel and copper. This diversification adds to revenue streams, which can replace lost income from coal mining.
Legal battles are another issue clouding Glencore’s stock prospects. Financial services equipment Legal and public affairs It launched a new lawsuit against the commodities giant after it recently pleaded guilty to allegations of bribery and market manipulation.
should i buy?
I think Glencore shares can continue to generate decent returns, but there are some notable risks. Accordingly, I am not sure it would be wise to expect similar extraordinary returns over the coming years.
However, I think the stocks are worth buying as useful passive income generators. If I had some spare cash, I’d put a small amount into Glencore stock for its market-leading dividend yield.