The ASX 200's former dividend leader returns to the high-yield club

Yancoal (ASX: YAL) has reinstated its dividend after a brief identity crisis, during which the Board opted to skip its September 2024 interim payout to focus on growth opportunities.

The company's full-year results highlighted another period of strong cash generation despite a sharp decline in coal prices. The key numbers from the result include:

• Attributable coal production up 10% to 36.9Mt

• Average realised thermal coal prices down 24% to A$160 a tonne

• Cash operating costs down 3% to A$93 a tonne

• Profit after tax down 38% to $1.2 billion

• Net cash position up 88% to $2.34 billion

And most importantly – declared a fully-franked final dividend of $687 million or 52 cents per share. This represents a dividend yield of approximately 8.4% based on Friday's open price of $6.16.

To add some perspective, Yancoal recorded a dividend yield of approximately 14% in FY21, 20.2% in FY22 and 27.0% in FY23.

Weak coal prices, strong cash generation

Coal prices have been in a steep downtrend, with Newcastle coal futures dropping 33.5% since November 2024, from US$150 a tonne to US$103.5. The selloff was driven by several factors, including a milder northern hemisphere winter that softened heating demand and strong supply from Australia, China, and Russia.

While a 38% drop in net profit might seem concerning, Yancoal’s cash generation remains strong, relative to its market cap. Its net cash position increased 88% or $1.09 billion, which equates to roughly 15% of its market cap. And despite a 24% decline in average coal selling prices, its EBITDA margin remained solid at 37%, down from 45% a year ago.

Looking ahead

"We aim to replicate the 2024 operational performance in 2025. The production and cash cost guidance ranges remain the same as last year," said acting CEO Ning Yue.

The key guidance numbers include:

• 35-39Mt attributable saleable production (2024: 36.9Mt)

• $89-97 a tonne cash operating costs (2024: $93)

• $750-900 million attributable capital expenditure

While investors may welcome the reinstatement of dividends, this does not necessarily signal a return to Yancoal's old habits. "After making the dividend payment, we will still be in a position to pursue growth opportunities for the benefit of our shareholders," said Mr. Yue.

However, Yancoal may proceed more cautiously in light of the backlash and share price pressure it faced when it skipped its interim dividend last year. That decision triggered a one-day selloff of 14.5% on August 20, 2024, followed by an additional 11% drop over the next six days.

On a positive note, Yancoal will retain approximately $1.65 billion in cash on its balance sheet after the final dividend payout. Yet, given the scale of recent coal-related M&A deals, its dividend policy could still face risks if the company decides to pursue major growth opportunities. For instance, Glencore acquired a 77% stake in Teck Resources' coal unit in July 2024 for $6.9 billion in cash, while Whitehaven purchased BHP's Daunia and Blackwater mines for $4.1 billion in April 2024.

Regardless of what happens next, the market appears happy with today's announcement, with Yancoal shares up 8.5% to $6.23 at noon.