ASX Dividend Stocks: A 7-12% yielder that's survived brutal sector conditions
Indonesian operations give NIC resilience as UBS forecasts 7-12% dividend yields while sector peers collapse under price pressure.
Source: iStock
Mentioned
KEY POINTS
- UBS forecasts dividend yields of 7-12% over the next three years, with the company maintaining a 4 cents per share dividend despite reporting a US$189.8 million statutory loss in FY24.
- The company's Indonesian operations provide significant cost advantages, positioning it at the bottom of the global cost curve while many Australian nickel miners have entered administration or care and maintenance mode.
- Potential RKAB quota expansion in Indonesia represents a key growth catalyst, though upcoming debt refinancing obligations beginning in October pose balance sheet risks with net debt of US$832.1 million.
I'm on a mission to uncover some of the ASX's most compelling dividend-paying stocks. The aim is to provide readers with the key data and forecasts to make more informed decisions. Today, we're taking a look at Nickel Industries.
Nickel Industries (ASX: NIC) is an Indonesia-focused nickel producer transitioning from traditional nickel pig iron (NPI) production for stainless steel to higher-value battery-grade nickel and cobalt products.
While the company's numerous projects across varying ownership levels and nickel outputs can appear complex at first glance, the underlying business remains fundamentally cash generative and resilient despite weak nickel prices. A recent UBS report highlights this strength, forecasting attractive dividend yields of 7-12% over the next three years.
What Makes Nickel Industries Interesting?
The stock has held up relatively well in a challenging environment that has devastated the broader nickel sector. While nickel prices have nearly halved since 2023, driving the stock down around 20% over the same period, this decline pales in comparison to the sector-wide carnage that has forced many Australian miners into administration or care and maintenance mode due to weak prices and cost inflation.
Nickel Industries (blue) vs. nickel price (orange) | Source: TradingView
The company's key competitive advantage lies in its Indonesian operations. However, even this geographic advantage hasn't shielded it from operational headwinds. In its FY24 results, the company reported a US$189.8 million loss after tax, primarily driven by a US$205 million impairment on older projects lacking integrated electricity supply.
Yet beneath this statutory loss is a more encouraging operational picture. The company maintained a gross profit of US$186.7 million and continued rewarding shareholders with a 4 cents per share dividend for the year.
Cost Advantage Provides Shield in Tough Market
UBS expects nickel markets to remain in surplus through 2025-28, with demand growth slowing to 4-5% annually compared to 9% in the previous cycle. However, with nickel prices sitting at around 75% of the industry cost curve, UBS sees limited downside risk from current spot prices of US$6.80/lb.
Nickel Industries' position at the bottom of the cost curve provides protection in this environment, according to UBS analysts. The company's operations in Indonesia benefit from some of the world's lowest production costs, offering a significant buffer against commodity price weakness.
Indonesian Quota Expansion Hopes Rise
UBS has turned more optimistic about Nickel Industries securing an increased RKAB (mining business licence) quota in Indonesia following discussions with regional analysts. The bank notes that Hengjaya, NIC's Indonesian partner, appears well-positioned to receive priority given its integration with downstream processing assets.
This potential quota expansion represents a key catalyst for the company, allowing increased production from upstream mining operations including the Sampala project. Any expansion would provide additional growth opportunities despite the challenging commodity backdrop.
Debt Refinancing Looms as Key Risk
Despite the operational positives, UBS flagged balance sheet concerns as unsecured note repayments begin in October. The timing and structure of any debt refinancing will be important for the company's financial flexibility.
The company had US$222.5 million cash and US$1.05 billion debt as at 31 December 2024, or a net debt position of US$832.1 million.
Earnings and Dividend Outlook
UBS (as at 21 July) forecast the following earnings and dividends:
FY24 | FY25e | FY26e | FY27e | |
|---|---|---|---|---|
Revenue (US$m) | 1,744 | 1,922 | 2,479 | 2,768 |
Net earnings (US$m) | (169) | 153 | 314 | 424 |
DPS (US$) | 0.04 | 0.04 | 0.04 | 0.07 |
Dividend yield (%) | 7.0% | 8.5% | 7.8% | 12.1% |
Net debt/EBITDA | 17.0 | 1.2 | 0.6 | 0 |
Source: UBS
The Bottom Line
Despite the volatile supply and demand environment, analysts believe the company's operational excellence and strategic location position it well to continue delivering solid earnings and returns to shareholders.
However, the challenging demand backdrop — driven by reduced stainless steel production in China and Indonesia, alongside weakening electric vehicle sentiment that has dampened battery-related nickel consumption — is expected to ease as supply constraints take hold.
UBS says supply growth has already slowed from around 10% annually between 2021-23 to 7% in 2024, and forecasts further deceleration to below 5% for 2025-27 as higher-cost operations close or defer production. These factors suggest the fundamental supply-demand dynamics are gradually rebalancing in favor of low-cost producers like Nickel Industries.
