Why I won't ignore the chance to buy this top high-yield ASX 200 dividend share in 2023

This business model is rarely seen among Australian stocks.

| More on:
A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Imagine an S&P/ASX 200 Index (ASX: XJO) stock that pays out a 7% dividend yield with decades of reliable revenue to come.

Well, such a stock does exist, but is poorly understood by Australian investors.

Deterra Royalties Ltd (ASX: DRR) is a company that owns royalty rights for mining assets. The best way to describe it might be that it's the landlord of the mine, while the mining companies are tenants.

Royalty stocks are fairly common in Canada, which has a resource-rich economy similar to Australia.

But here it is rarely seen.

A 'misunderstood' gem pumping out the dividends

So why is Deterra Royalties such a tempting dividend buy?

In February, TMS Capital portfolio manager Ben Clark explained why it's one of the five ASX 200 shares he would buy if he was starting a portfolio from scratch.

"What Deterra has is globally unique," he said.

"Deterra owns a 1.232% royalty over the MAC [Mining Area C], which about two-thirds of BHP Group Ltd (ASX: BHP)'s total iron ore production comes out of."

Created with Highcharts 11.4.3Deterra Royalties PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

The clincher is that, unlike most royalty companies, Deterra's revenue comes from BHP's revenue made from the mine, rather than profit.

That means that even if iron ore is going through a cyclically low time, Deterra will still make money.

Clark noted the MAC mine has an estimated 60-year life. Not only that, BHP is ramping up production over the coming years.

"It's an incredibly interesting business. But I still think it's misunderstood."

If you add up franking credits, the dividend yield this year will end up around 11% to 12%, he added.

All this positive energy could mean that it might not last for long on the ASX.

"It's got net cash on the balance sheet, and I think at some stage, one of those big resource players will come sniffing for it."

The Deterra Royalties share price is 5.9% higher so far this year.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

Buy these high-yield ASX shares for major passive income in 2025 and beyond

Let's see why analysts think these shares could be great buys for income investors.

Read more »

A happy elderly woman smiles and cheers as she looks at good investment news on her laptop.
Dividend Investing

2 ASX dividend champions that never cut payouts

These two dividend stocks have consistently rewarded investors. 

Read more »

Happy couple enjoying ice cream in retirement.
Dividend Investing

Aiming for rock-solid retirement income? I'd buy these two ASX shares

These stocks offer compelling levels of income for retirees.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Dividend Investing

Invested in ASX MOAT or other VanEck ETFs? It's dividend day!

Show us the money!

Read more »

A couple working on a laptop laugh as they discuss their ASX share portfolio.
Dividend Investing

Here are 2 ASX income stocks with yields above 7%

These businesses are providing investors with significant income.

Read more »

Man holding fifty Australian Dollar banknote in his hands, symbolising dividends, symbolising dividends.
Dividend Investing

Want passive income? Check out these ASX dividend shares

Analysts think these shares could be perfect for passive income investors.

Read more »

A couple stares at the tv in shock, with the man holding the remote up ready to press a button.
Dividend Investing

Why Macquarie expects this high-yielding ASX All Ords stock to charge higher AND boost its dividends

Looking for a quality ASX dividend share with strong growth potential? Read on!

Read more »

A miner in a hardhat and high visibility clothing makes a thumbs up symbol.
Resources Shares

4 reasons to buy Rio Tinto shares today

A leading expert forecasts strong growth potential for Rio Tinto shares.

Read more »