The Alumina Limited (ASX: AWC) share price has started 2019 on a front foot and the stock may have more room to run higher as Macquarie Group Ltd (ASX: MQG) is tipping that the miner will pay a record dividend when it releases its profit results later this month.
Investors may be paying heed as the AWC share price is up 0.6% in after lunch trade to $2.60 when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gave up morning gains to trade 0.2% in the red.
Other mining stocks aren't helping. The Rio Tinto Limited (ASX: RIO) share price lost 0.9% to $91.20, the BHP Group Ltd (ASX: BHP) share price fell 0.7% to $36.01 and the South32 Ltd (ASX: S32) share price is flat at $3.69 at the time of writing.
Record dividend
The broader market weakness makes the gains by the Alumina share price all the more notable as the company prepares to hand in its full year profit results next Thursday.
"Our CY18 EPS [earnings per share] estimate of US24cps is in line with consensus, and our CY18 dividend forecast of US22cps is at the top of consensus ranges," said Macquarie.
"We have updated our final dividend assumption due to changes to our provisional pricing assumptions, and now forecast AWC will declare a record US13.4cps final dividend."
The dividend is even juicer considering the current exchange rate. The Australian dollar is currently fetching a little more US71 cents compared to this time last year when it was trading at around US79 cents!
The dividend is only one reason why Macquarie is reiterating its "outperform" recommendation on the stock with a $2.70 price targt.
Valuation upside
But Alumina's dividends aren't the only drawcard. Macquarie sees room to boost its valuation on the company.
"[There] still remains significant valuation upside at spot alumina prices (US$378/t) which are currently trading ~25% above long-term estimates of US$300/t," said the broker.
"We also note A$ spot prices of A$535/t are 43% above our long-term forecast of A$375/t."
However, there is uncertainty over the ramp-up of its Brazilian-based Alunorte mine to 100% operational capacity in the wake of Vale SA's Brumadinho tailings dam disaster.
Macquarie is predicting that the mine will hit its straps by the middle of the June quarter and that could push the alumina market into a 600,000 tonne surplus in 2019, although it could slip back into a deficit after August 2019.
