Cliffs Natural Resources: Doubles Dividend, Focus on Organic Growth

After disappointing market with its results last month, Cliffs Natural Resources (NYSE:CLF) brought cheers to investors when it decided to more than double its dividends. Additionally, Cliffs announced its intention to focus more on organic growth while reducing debt. ^[1]

In its recent fourth quarter and full year 2011 results, Cliffs reported a 52% year-on-year decline in net income primarily due to higher costs. ^[2] The announcement may inspire other mining giants like Vale (NYSE:VALE), Rio Tinto (NYSE:RIO) and Freeport McMoran (NYSE:FCX) to follow the same footsteps following recent slump in their stocks.  Our current price estimate for Cliffs stands at $88, implying a premium of about 25% to the current market price. We are in process of revising our price estimate.

See Full Analysis of Cliffs Natural Resources Here

Dividend hike a strategy to woo investors?

We recently discussed the role of political risks in under-performance of mining stocks compared to underlying commodities in our note Political Risks Weigh on Freeport, Vale & Other Mining Stocks. China’s reduced growth target also fueled concerns of slowdown in commodity prices and demand sending mining stocks south. Cliff’s announcement to boost dividends could very well be influenced by stock’s under-performance than lack of opportunity.

Cliffs has decided to increase its focus on strong, attractive and diverse organic growth opportunities. In Tuesday’s press release Joseph Carrabba Cliff’s CEO said, “Cliffs has experienced tremendous growth through M&A in recent years and, with that, has also acquired a diverse and strong pipeline of attractive organic growth projects.”

While this is a positive, we believe the company may still go for M&A route provided right opportunity comes up. ((Company not finished with M&A, Reuters, Feb 16 2012))

Understand how a company’s products impact its stock price at Trefis

1. Cliffs Natural Resources Inc. Announces Capital Allocation Strategy Focused on Driving Total Shareholder Return, Cliffs News Releases, March 13 2012 [↩]
2. Cliffs Natural Resources Inc. Reports Fourth-Quarter and Full-Year 2011 Results, Cliffs News Releases, Feb 15 2012 [↩]