Image source: Anglo American plc
Holding income stocks indefinitely and reinvesting the dividends can increase wealth significantly. As payouts from equity stocks are reinvested, these can generate additional returns, creating a snowball effect that accelerates portfolio growth over time.
BlackRock World Mining Trust's (LSE: BRWM) is one such stock for me. It stands out as a compelling long-term investment and I can't imagine selling it. Here is the reason.
Strong returns
As the name suggests, this specialist FTSE 250 the investment trust focuses on the mining and metals sector around the world. It aims to grow capital and provide a reliable income stream, supported by the cash flows generated by its portfolio of mining assets.
The share price has fallen about 8% year to date as China's slow economic growth has led to lower demand for manufacturing and construction materials.
However, the price is still up about 55% in five years. Add in dividends and the five-year total return is over 10%, according to the report AJ Bell.
Broad exposure
The portfolio is diversified across geographies and assets, reducing the risk associated with any one company.
Top 10 holdings (as of May 2024):
| Glencore |
| BHP |
| Rio Tinto |
| Shut up |
| Anglo American |
| Freeport-McMoRan |
| Newmont |
| Teck Resources |
| Company Norsk Hydro ASA |
| Agnico Eagle Mines |
It also has investments in unlisted companies, as well as mining interests and bonds that provide income diversification.
Rather than buying individual mining stocks, I prefer this broad exposure. There is an ongoing fee of 0.91%, but I think it is worth it as the trust is managed by a team of experienced BlackRock professionals. They have a deep understanding of the industry and are well equipped to navigate its inherent volatility.
This is important because the mining sector is cyclical. Stocks can fall suddenly and dividends are reduced during economic cycles.
There is a risk that the yield, which currently stands at 6.2%, will be cut this year. However, in the long term, I expect mining and dividend yields to rise higher.
Power change
This is because as the world transitions from fossil fuels to sustainable energy sources, the demand for transition metals is expected to increase dramatically.
The mining and materials sector… will deliver the copper needed for electricity, the metals needed to develop global power grids, lithium for batteries and steel for wind turbines. The energy transition should provide a long-term source of demand for these minerals that will be structural rather than cyclical..
BlackRock World Mining Trust
In addition, the existing mines are mature and it seems difficult to increase production. It will take time to open new ones, suggesting the supply/demand imbalance may support future price increases.
Copper and gold
For example, the portfolio is heavily concentrated in copper, which sees limited new supply coming to market as long-term demand for electrification is high.
The price of steel reached a record high in May, but demand may double by 2035, driven higher by a lack of supply. Another area of focus is gold, which hit a new record recently as it rose above $2,530 an ounce.
This stock offers a combination of income and exposure to mining companies that provide the necessary tools for the green transition. I plan to hold it forever.
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