Commodity trading is a vital but often overlooked part of the global economy. Every day, commodity trading houses such as Glencore (LSE: GLEN) shift tens of billions of dollars of goods around the world.
As the global economy has expanded, the role played by these trading giants has only grown. It does not look as if this trend will end any time soon. That is why I would buy this FTSE 100 stock for my portfolio to hold for the next decade.
A global giant
Glencore is one of the world’s largest traders, so it has a unique edge in this market. Not only is it the biggest, and therefore has stronger economies of scale than the competition, it also owns mines around the world.
By directly owning the mines, the firm does not have to worry about buying commodities to sell. It already owns the resources. It just has to find buyers.
Many of the FTSE 100 company’s peers do not have the same advantages. Glencore also owns a vast portfolio of infrastructure assets, which help it fill orders and meet buyers’ requirements.
Despite its competitive advantages, the corporation is still exposed to the uncertainties of the industry. Commodity prices can be highly volatile. This means the firm’s profitability is far from guaranteed.
At the same time, buying commodities and then selling them on requires a lot of debt and trust from both parties. If Glencore’s financing is cut off, it might struggle to fill orders. This could erode trust among clients.
FTSE 100 growth
Despite the risks outlined above, I think the future for the commodity sector is incredibly exciting. The global economy will only require more resources such as iron ore, copper and oil over the next decade. Companies like Glencore are usually the first place buyers turn when looking for new deals.
With these tailwinds in place, I think the FTSE 100 should be able to continue to grow over the next decade. With its competitive advantages, the firm should be able to navigate the competitive and geopolitical landscape to meet buyers’ and sellers’ demands.
What’s more, in the past, the enterprise has been willing to reward investors with substantial cash returns when profits rise. A couple of weeks ago, the group announced a bumper $4bn dividend, one of the highest payouts in the FTSE 100, as profits jumped.
There is no guarantee this trend will continue. But considering Glencore’s track record of cash returns, I think the business will likely try to return more money to investors when it can. The stock currently supports a dividend yield of around 3%.
As such, I would be happy to buy the FTSE 100 stock for my portfolio today to hold until 2032. I am excited about the firm’s dividend and growth potential over the medium to long term.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.