Yancoal cements its position as one of the ASX 200's highest paying dividend stocks

Yancoal (ASX: YAL) often takes the number one spot in our 'Dividend Yield Scan' with a deceptively high trailing yield of around 20 percent.

But the company's December quarter report demonstrates the production, earnings and cash flow to back such an outrageously high yield. Here's what you need to know.

A strong finish

Yancoal produced 18.1 million tones of coal in the December quarter, up 4% quarter-on-quarter and marks the fourth consecutive quarter of higher output.

"At the start of 2023, Yancoal aimed to increase its production output in each successive quarter. We met this goal and delivered 33.4 million tonnes, the mid-range of the 31-36 million tonne 2023 guidance for attributable saleable production," the company said in a statement.

The average realised price for its thermal coal fell 1% quarter-on-quarter to $196 a tonne. Yancoal said its realised prices tend to lag coal price indices due to various sales contract structures. Due to delayed sales volumes, December quarter prices managed to capture some higher prices from earlier in the year.

The above output and prices drove a $477 million increase in cash holdings, with a total cash balance of $1.4 billion as at 31 December 2023.

Why is this impressive?

• Yancoal has a market cap of $7 billion. Almost 20% of its market cap is cash

• The $477 million increase in its cash balance translates to quarterly free cash flows of about 6.8% ($477m divided by $7bn)

• That's an annualised free cash flow yield of 27% (for illustrative purposes only as earnings are subject to change).

To add some perspective, here are some companies with a market cap of around $477 million:

• Sayona Mining (ASX: SYA) – $453 million

• Core Lithium (ASX: CXO) – $452 million

• Chalice Mining (ASX: CHN) – $436 million

All aboard the yield train

Yancoal shares opened 3.2% higher to $5.43 and currently up 8.7% to $5.70 (as at 11:00 am AEDT).

Yancoal intraday chart on Friday, 19 January 2024 (Source: TradingView)

Looking back

Yancoal has a different reporting structure and reports its full-year results in February as opposed to August. It's latest full-year result (2022) noted:

• $10.5 billion revenue

• $6.3 billion operating cash inflow

• $3.5 billion net profit after tax

• Full-year dividend of $1.23 per share

• Full-year EPS of $2.71 per share

• This equates to a payout ratio of 45%

The $1.23 dividend is used to derive the trailing dividend yield of 21%.

What's interesting is that the payout ratio only sits at 45% – Imagine what the yield would be if Yancoal elected to pay out 80-90% of its earnings.

Coal outlook

The quarterly report noted how "thermal coal markets appeared well balanced for much of 4Q 2023. Northern Asia and Europe were experiencing a relatively mild start to winter and generally carried good levels of coal stockpiles."

"It was a similar situation in China, but it is worth noting that, overall, Chinese thermal coal imports were up by ~45% in 2023 compared to 2022."

"Across the thermal coal and metallurgical coal markets, supply and demand remain relatively well balanced and subject to the influence of short-term factors."