Long-term investors appreciate an ASX dividend stock with high-quality fundamentals and attractive dividend yields.
With a generous 8% trailing yield and a current share price of $3.81, Deterra Royalties Ltd (ASX: DRR) stands out as an attractive option for income-focused investors, in my opinion.
Brokers are bullish on the company, noting that the recent market sell-off could provide an opportunity. Here's why this ASX dividend stock might be worth considering for your portfolio.
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Why Deterra Royalties is a top ASX dividend stock
In case you didn't know, Deterra Royalties is a mining royalties company boasting a diverse portfolio of assets.
Its crown jewel is the Mining Area C iron ore project, operated by none other than mining giant BHP Group Ltd (ASX: BHP).
Deterra's share price has faced significant pressure in 2024, dropping 30% from its peak of $5.41 in February.
Interestingly, most of the decline came after the ASX dividend stock made two significant updates.
In June, it acquired Trident Royalties Plc and announced a shift in its dividend strategy from a 100% payout of net profit to a minimum of 50%.
Previously, it paid out 100%.
While these updates initially rattled investors, analysts still see long-term potential.
UBS analysts maintain a bullish stance on Deterra, rating the ASX dividend stock as a buy with a price target of $4.90.
This suggests a potential upside of 29% at the time of writing. Similarly, Goldman Sachs recently upgraded its rating from hold to buy, setting a price target of $4.70 per share.
It highlighted Deterra's balance sheet, which shows a net cash position of $30 million and a $500 million debt facility.
Deterra's dividend prospects
Most important to this discussion is the royalty company's dividends. Even with the revised payout policy, Deterra is expected to maintain attractive yields.
UBS forecasts payouts of 31 cents per share in FY 2024 and 16 cents per share in FY 2025 from the ASX dividend stock.
At the current share price, these figures translate to yields of approximately 8% and 4%, respectively.
Goldman Sachs also anticipates strong free cash flow and dividend yields, suggesting that Deterra remains a solid choice for income investors.
In my view, the company's payout decision could be beneficial over the long term. It will free up cash for Deterra to acquire more assets and, ultimately, produce more royalty income for higher dividends.
It's up to management to execute on this now.
Final thoughts
Given its current yield and the potential for share price recovery, Deterra Royalties is my top ASX dividend stock right now.
The company's solid financial foundation, valuable assets, and strategic acquisitions make it a noteworthy contender.
Remember to conduct your own due diligence and speak to a professional investment advisor when needed. Past performance is no guarantee of future results.
