In 2021, Canada was the 7th largest exporter of iron ore in the world.
Most of the iron ore in Canada is concentrated in Quebec and Newfoundland, and Labrador, and almost all the extracted ore is used by the global steelmaking industry.
It’s also reflected in the mine/project ownership, as two out of the five largest Canadian iron mines are owned by steel manufacturers.
- Decent dividend stocks.
- Powerful growth potential.
- Performs well when the economy is strong and during development periods.
- Relatively few choices.
- Vulnerable to iron ore price fluctuations.
The iron ore industry in Canada is relatively small, and the four best options you have to invest in this industry are:
1. Champion Iron
- Ticker: CIA.TO
- Size: Mid-Cap
- Forward Dividend Yield: 3.00%
- Dividend Payout Ratio: 69.77%
- Dividend Yield (12-Month Trailing): 2.92%
- Upcoming Dividend Date: Nov 28, 2023
- Market Cap: $3.58 Billion
- Forward P/E Ratio: 8.29
Champion Iron is an Austrian company that operates primarily in Quebec and trades on both the Canadian stock market and the Australian stock market. Australia is by far the largest iron exporter in the world, and Champion Iron’s association with Australia can be considered a benefit for the company.
Two out of three of the company’s flagship projects are in Quebec, and the other is in Newfoundland and Labrador. Similarly, six out of seven of its exploration projects are in Quebec. The company is also associated with China through one of its subsidiaries.
The stock has mostly gone up since its inception in 2014 (in Canada). Between March 2014 and March 2023, the stock has risen by about 1,180%.
It hasn’t been a straight run-up, and the stock has cratered multiple times, but it has shown its resilience via relatively quick recoveries. The company has only recently started paying dividends.
2. Labrador Iron Ore Royalty
- Ticker: LIF.TO
- Size: Mid-Cap
- Forward Dividend Yield: 9.86%
- Dividend Payout Ratio: 74.70%
- Dividend Yield (12-Month Trailing): 8.86%
- Upcoming Dividend Date: Oct 26, 2023
- Market Cap: $2.03 Billion
- Forward P/E Ratio: 11.17
Labrador Iron Ore Royalty company is a Canadian investor’s gateway to the Iron Ore Company of Canada (IOC), a premium iron ore producer.
The IOC is co-owned by three entities: Rio Tinto has the largest share, Mitsubishi has the second-largest share, and Labrador Iron Ore Royalty has the smallest share of the company (15.1%).
From a business model perspective, the benefit of investing in Labrador Iron Ore and, by extension, the IOC is its integrated operations. It has access to the second largest mine in Canada, Carol Lake Mine, which is owned by one of the three owners of Labrador (Rio Tinto).
It also has a processing facility that produces the concentrate, which is then converted into pallets and then sent to a vessel-loading facility the company owns via a 418-kilometer railway line owned by a subsidiary.
From an investment perspective, Labrador Iron ore is a good buy for both its dividends and capital appreciation potential, but be ready to deal with some inconsistency.
Labrador kept its payouts consistent for a while but augmented them with very generous special dividends. But there were seven different payouts for the eight quarters of 2021 and 2022. Still, the yield is typically quite good.
As for the capital appreciation potential, the longest bullish phase the stock experienced was between Jan 2016 and July 2019, which pushed it up over 380%. The growth pattern was modestly similar to the price of Iron ore.
3. Altius Minerals
- Ticker: ALS.TO
- Size: Small-Cap
- Forward Dividend Yield: 1.41%
- Dividend Payout Ratio: 37.50%
- Dividend Yield (12-Month Trailing): 1.71%
- Upcoming Dividend Date: Dec 15, 2023
- Market Cap: $890.72 Million
- Forward P/E Ratio: 44.9
Altius is a royalty company. The bulk of its royalties comes from various metals, and iron ore makes up about 10% of it. The rest comes from power generation assets.
The business model makes it different from most other best Canadian iron ore stocks on this list, primarily because of its limited overlap with iron ore.
With 40% of its royalties coming from potash, the stock may follow the pattern of the agricultural stocks more faithfully compared to the pattern of other iron ore companies.
The most recent bull market phase the stock experienced was between July 2020 and March 2023, which pushed the company’s value up over 128%.
The company has been very consistent with its payouts, so even if the yield may not be ideal, it may be considered a good dividend investment from a reliability perspective.
4. Black Iron
Black Iron is a Toronto-based company with a project in Central Ukraine. The company owns 100% of the rights to the project and focuses on high-grade iron ore, which is experiencing a rise in demand (since it’s more eco-friendly).
The stock started out with a decent price tag (above $1), but it soon fell down to a penny stock status and has remained there since 2011. As a penny stock, it’s quite volatile, but the good part is that it can offer exceptional returns from relatively small surges.
Between March 2018 and March 2023, it has risen by over 100% on at least five separate occasions. So if you buy it low and hold on, you can expect good returns if it surges again.
Three things you should keep in mind before investing in the best Canadian iron ore stocks.
- The stock’s performance may be tied to the value of iron ore, which, in turn, is reliant upon the global demand for steel. The steel industry experiences the most significant boom when construction is on the rise.
- As a base metal, iron is synced to the market. If the economy is good and development is ongoing, the stocks may rise. But they may suffer during weak economies. This is in stark contrast with precious metals you may invest in as a hedge.
- The value of iron ore can be tied to global factors you may not usually keep track of or account for, like a construction boom in China or India.
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Iron ore stocks can be powerful growers if bought and sold in the right market and when the economy is strong. They might also be good picks from a dividend perspective, but it’s highly dependent on your stock choices.
If you are more interested in the finished product (steel) rather than the raw one (iron ore), these steel stocks might be worth looking into.