Gold Stocks With Dividends - Financhill

Gold Stocks With Dividends

Gold Stocks with Dividends: When investors lose confidence in the market, they often look for a safe place to park their cash that has been pulled out of the market. Gold is often the preferred choice for nervous investors during times of economic uncertainty and volatility, which, in turn, drives up the gold price.

The yellow metal is also considered to be a safe haven in times of inflation as it tends to retain its price unlike currency-based assets, which suffer a decline in value during periods of climbing inflation.

Investors can either possess gold physically by purchasing gold coins or bullion, or buy stock in gold mining companies, gold-focused exchange-traded funds (ETFs), and gold futures contracts, among other financial instruments, to profit from rising gold prices.

Investing in gold stocks is similar to purchasing stocks of any other company as the share price will move in sync with the overall market and the performance of the company. But which stocks are deserving of your money and do any gold stocks pay dividends?

The Gold Conundrum

If you are purchasing stocks of a gold mining company, the price movement, apart from the gold price, may also mirror the company’s overall financial condition and performance.

Gold jumped to new highs as investors, spooked by the economic wreckage triggered by Covid-19, sought refuge in the precious yellow metal.

Then, in a shocking turnaround, it fell steeply, leaving experts baffled, as it was the first time since the recession of 2008 that investors unloaded gold and gold stocks, in spite of the economic turmoil.

It has bounced back since, continuing its spectacular run since 2019 when an escalating Sino-US trade war coupled with low inflation made gold and gold stocks look like a can’t-lose bet.

Then came the heightened tension with Iran, post killing of General Suleimani, which propelled gold to breach the $1,600 mark.

The emergence of the novel Coronavirus created a new rush to safety, ensuring gold retained its hold on investors. Gold price hit a seven-year high in May, 2020, rising to $1,660 an ounce, lifting prices of gold mining companies in the process.

How Has Gold Performed During Covid?

The price of gold has kept rising as the world jumps from one threat to another. The good news for gold investors has been the resiliency shown by gold as its price has refused to subside even when the risk to global economy has receded.

One reason cited for it by experts is low rather than high inflation despite the fact that gold prices go up during times of inflation as the value of currency goes down, making gold a preferred tool to hedge against inflationary conditions.

The Covid-induced economic coma has brought demand to an abrupt halt, making too little, rather than too much, inflation an overriding concern for policymakers. This has led to a dramatic reduction in interest rates, one of the biggest factors influencing gold prices.

Gold and interest rates traditionally have a negative correlation as rising interest rates make government bonds and other investments more lucrative to investors in comparison to gold. This is for the simple reason that holding gold comes at an opportunity cost.

The money invested in gold could instead be invested safely in bonds. When interest rates go up, investors find it more lucrative to invest in other financial instruments and gold loses some of its appeal.  The Federal Reserve has given enough hints about keeping interest rates hovering around zero to boost consumption and tick inflation above its 2% target, which means gold is going to remain in favor even as the global economy improves.

Additionally, the coronavirus shows no signs of abating despite lockdowns, which means the global economy is not going to make a sharp recovery anytime soon. This would mean gold prices would continue to gather steam in the near future.

Are Gold Mining Stocks Best?

Investors could buy gold mining stocks. The other option is to buy stocks of gold royalty companies, i.e. companies that finance gold mining operations in exchange for rights of buying gold at below-market price.

Investing in gold stocks or a gold-mining ETF is made under the assumption that the buyer will profit from rising gold prices.

A higher gold price can feed the bottom line, whereas declining gold prices can quickly deflate the bottom line.

Also, investing in gold stocks is slightly more complicated than buying the precious metal itself owing to a variety of factors.

Gold mining companies may be forced to halt or suspend production, grapple with depleting reserves or may pile up a large amount of debt, which may negatively impact the stock price.

On the other hand, the price will move north if the company finds new reserves, increases output or finds new ways of cutting down on operational costs.

It is also to be noted that corporate dynamics — and their changing sensitivities – sometimes take precedence over the actual price of gold.

Gold mining companies have been known to strike big even with falling gold prices. All in all, whether you agree that gold is a safe bet or not, it makes sense to invest in gold companies or gold ETFs after proper research and due diligence just like any other regular stocks.

It means you need to wait for the right time and proper ‘buy’ signal. Keeping all these factors in mind, we present here seven gold stocks with dividends to ease your investment decision.

Harmony’s acquisition of AngloGold Ashanti a good move

Harmony Gold Mining Company Limited [NYSE: HMY] is a gold-mining and exploration company, which is engaged in gold mining and related activities, including exploration, extraction and processing, primarily from its operations in South Africa and Papua New Guinea.

Headquartered in Randfontein, South Africa, Harmony is currently South Africa’s largest gold producer, and the eleventh largest gold producer in the world. The Company’s principal product is the Gold bullion, though it also explores for copper and silver deposits.

Harmony Gold became Africa’s largest gold producer post its acquisition of AngloGold Ashanti’s [NYSE: AU] remaining assets in South Africa for $200 million.

The purchase enabled Harmony to acquire the Mponeng mine, the deepest gold mine in the world. Moreover, Harmony views the acquisition as a strategic and geographical fit which will enhance its operational abilities and augment its financial strength by improving the company’s cash flow profile while increasing its annual production by over 350,000 ounces.

This makes Harmony the top gold producer in South Africa, and one most likely to play an important role in driving up the company’s stock price, more so if gold prices keep rising, as they have been doing recently.

Harmony Gold Mining’s stock was trading at $3.37 on March 11th, 2020, before the novel coronavirus was declared a pandemic. It has suffered some decline since then, which makes it the right time for investors to dive in.

Analysts expect Harmony Gold Mining’s stock price to reach $4.10 in the next year, an upswing of 25.0% from the stock’s current price, indicating this would be a good stock for above average return.

Keep a close watch on Franco -Nevada for a downside in stock price

Franco-Nevada Corporation [TSX: FNV] and [NYSE: FNV] is a  gold-focused royalty and investment company. The Company owns one of the largest and most diversified portfolios of cash-flow producing assets, mostly located in geopolitically secure countries.

The portfolio is actively managed with the aim to maintain over 80% of revenue from precious metals (gold, silver & PGM). Franco-Nevada’s business model is focused on managing and growing its portfolio of royalties and streams, which means the company does not operate mines, develop projects or conduct exploration. The Toronto, Ontario, Canada-based company owns a diversified portfolio of royalty, stream and working interests in Latin America, United States, Canada, Australia and Africa.

Franco-Nevada’s core business is gold streaming. Simply put, it gives miners cash upfront in exchange for the right to buy gold, silver and other precious metals in the future at reduced rates.

It is a win -win situation for both miners and the streaming companies. The miners get access to cash without tapping the capital market or taking loans from banks, and the streaming companies contractually lock in low price. 

Also, streaming companies need not have too many employees on their payroll as it isn’t an employee-intensive business as they have to do little beyond providing the capital to the miners. Companies like Franco -Nevada as such enjoy a terrific margin when gold prices are high, but the best thing is that those high margins don’t change much even when commodity prices are falling.

As expected, the market is well-aware of the streaming models and the same is reflected in their stock prices. The S&P 500 Index is down around 10% so far in 2020, while Franco-Nevada is up 36%.

Gold prices will continue to soar higher in the upcoming years, primarily owing to the massive amount of money that is being printed around the world to deal with the economic mess created by the pandemic. Streaming companies like Franco-Nevada are uniquely positioned to benefit from rising gold prices.

Majority of its investments are in precious metals in mines in fairly stable and secure geographical locations. For example, in the first quarter of 2020, 86.9% of its revenues were from the Americas, reducing geopolitical risk.

To top it all, its balance sheet is enviable with the company investing from free cash flow, rather than debt.

And like other major gold miners, it does not offer too much by way of dividend (its current yield is just under 1%), but it has grown that dividend for over a decade. In its Q1 2020 results, Franco announced that it would be hiking its dividend by 4%.

Franco- Nevada has always been expensive because of its debt-free balance sheet and diverse income stream. Gold stocks have started retreating in recent times and if FNV’s shares pull back, perhaps it would be the right time to invest in this great company.

Investors should tread cautiously on Gold Fields

Gold Fields Limited [NYSE: GFI] is a producer of gold and a holder of gold reserves. The company is a globally diversified producer of gold with eight operating mines in Australia, Ghana, Peru and South Africa with attributable annual gold-equivalent production of approximately 2.2 million ounces.

In Peru, Gold Fields also produces copper. It has attributable gold Mineral Reserves of around 48 million ounces and gold Mineral Resources of around 101 million ounces.

Attributable copper Mineral Reserves total 454 million pounds and Mineral Resources 5,813 million pounds. Headquartered in Johannesburg, South Africa, the company was formed in 1998 with the amalgamation of the gold assets of Gold Fields of South Africa Limited and Gencor Limited.

Shares of Gold Fields [NYSE: GFI] rebounded strongly in April, rising 54%, after suffering 20% decline in March. There were a number of factors in play behind the dour mood turning sunny in April. The upswing in share price to an extent was reflective of the overall positive sentiment in the stock market.

The company’s international operations have been improving, and it has the capital to invest in existing and new projects. On the negative side, the company’s operational cost is over $1,000 per ounce, which is slightly higher than that of its peers. Also, as the coronavirus started spreading its tentacles around the world, spooked investors went on a selling spree, leading to a sharp decline in the gold miner’s stock price in March.

Further reinforcing the negative sentiment was the announcement by the company to temporary close the strategically important South Deep mine in South Africa in compliance with the government order. The company also reported more than 10 % year-over-year production decline in the first quarter.

The mood turned positive in April with Wall Street regaining ground. Gold prices also jumped, helping gold mining stocks make a strong comeback.  The company has a solidifying cash flow and margin and its dividend yields have been impressive, ranging between 25% and 35% of normalized earnings.

Having said that, investors need to be cautious as the threat of Covid-19 has not dissipated, which, in turn, could further hamper its operation, at least in near future.

Also, Gold Fields is a relatively high-cost miner with above average operational cost and a relatively small production, and high-risk portfolio profile.

This makes its stocks more volatile in comparison to its profile. All in all, investors looking to diversify their portfolio by investing in gold should tread cautiously when it comes to Gold Fields.

Buy and keep Royal Gold for a long term

Royal Gold, Inc. [NASDAQ: RGLD] engages in the acquisition and management of precious metal streams, royalties, and similar interest, with a primary focus on gold.

Precious metal streams are purchase agreements with mine operators, which gives the financing company a right to purchase metals produced from a mine at a pre-determined price.

A royalty is the right to receive a percentage of the metal produced from a mineral property. It operates through the following segments: Acquisition and Management of Stream Interests, and Acquisition and Management of Royalty Interests.

Approximately 91% of its reserves and 87% of its fiscal 2019 revenue were derived from North America, the Dominican Republic and Chile. Royal Gold, Inc. founded on January 5, 1981 is based in Denver, Colorado.

Royal Gold, Inc. [NASDAQ: RGLD] low fixed costs, diversified portfolio, a solid asset base, and methodical approach to precious metals’ transactions enables it to maximize shareholder returns.

It is, in fact,  one of the strongest players in the industry with an impeccable track record of shareholder returns.

First and foremost, it is a streaming and royalty company, which means it does not own or operate mines. What it does is that it buys precious metals from mining companies like Barrick Gold [NYSE: ABX] and Goldcorp Inc. [NYSE: GOLD] at a low cost by providing them capital upfront. It is, as such, shielded from risks of these capital-intensive projects, and, at the same time, gets to secure precious metals at low cost.

Though RGLD’s primary focus is on gold, it is expanding its horizon and expects to generate a quarter of its revenue from silver and other metals by 2022 with the Pueblo Viejo mine serving as its primary source for silver.

The diversification into other metals bodes well for the company as it allows it to benefit from both upsides in silver and gold prices.

Another major factor working in Royal Gold’s favor is that it owns world-class assets in politically stable regions. With a current portfolio spanning 38 operating and 22 developing mines, Royal Gold is rightful in boasting about a top-class asset base.

Royal Gold’s gross margins are much better than its peers like Barrick, Goldcorp and Newmont Mining among others. As a streaming company, it enjoys the right to buy metals at a substantially low price. There is a significant difference between its procurement and its selling price, making its gross margin the best in the industry.

No wonder, Royal Gold keeps boasting about the huge revenue it generates with a tiny workforce. It generated roughly $18.4 million of revenue per employee in 2019, which is a momentous achievement given the fact that tech giant Alphabet makes closer to $1.5 million per employee.

Royal Gold is also an excellent dividend payer. Despite the inherent volatility in the industry it operates in, the company has been continuously increasing its dividend payment since 2000.  And to top it all, despite the turmoil created by COVID-19, Royal Gold still managed to turn in a superb performance last quarter, reporting a record $136.4 million in revenue.

Additionally, it is seen that price movement of gold-related stocks are closely correlated with the price of gold. Royal Gold seems to have defied that trend as well, reporting better performance than the 38% upswing in gold prices in the past one decade. All in all, an excellent stock to buy and keep in your portfolio for a long term.

Sibanye-Stillwater Limited, formerly Sibanye Gold Limited [NYSE: SBGL], is a leading international precious metals mining company.  The Company is the world’s largest primary producer of platinum, the second largest primary producer of palladium and a top-tier gold producer, ranking third globally on a gold-equivalent basis, as well as a significant producer of rhodium and other PGMs and associated minerals such as iridium, ruthenium, nickel, copper and chrome.

Its projects are grouped by two regions: The Southern Africa region and the Americas region. Sibanye Gold, incorporated in 2002, is headquartered in Weltevreden Park, South Africa.

Sibanye Gold offers compelling valuation

For investors interested in mining companies, Sibanye Gold Limited [NYSE: SBGL] is definitely worth consideration. With a diverse portfolio of assets in both, the United States and Southern Africa, Sibanye Gold has significant exposure to both, gold and platinum group metals (PGMs).

However, the company’s business is not restricted to mining metals alone; it also markets itself as “a globally leading recycler and processor of spent PGM catalytic converter materials.” SBGL was a star performer amongst mining companies in 2019, skyrocketing over 250%.

This may compel few investors to falsely assume that the stock has reached its peak, and there is nothing further to gain from purchasing it.  Here we dig a bit deeper to find out if that assumption is true.

What makes Sibanye Gold really attractive from an investment point of view is its diversified portfolio which mitigates risk to a considerable extent. In 2018, for example, platinum group metals (PGM) represented 59% of the company’s annual metal production, whereas gold made up the remaining 41%.

What it means is that the company finds itself in a singularly good position to benefit from upswing in prices of gold, iridium, ruthenium, palladium, and chrome, whereas a sharp downturn in prices of any of these metals is unlikely to bring the company on its knees.

The company has also been largely successful in shoring up its financial health. For the six months ending 31 December, 2019 the company reported a44% increase in revenue to $5.0 billion.

The company also made solid operational recovery by the end of the second quarter (the company reports financial results on a semi-annual basis) following strike and other operational disruptions in the first quarter of 2019. Also, the company reduced its net debt to $1.5 billion — its lowest level since it acquired Stillwater in May 2017.

On the flip side, lack of dividend payment by the company could prove to be a mood dampener for investors. The company suspended dividend payments in 2017 post its acquisition of Stillwater, with the promise that it will soon be resumed.

The company, however, has yet to reinstitute the dividend, something that may not sit too well with investors, given the fact that its rivals have been constantly raising dividends. Also, the company’s ability to generate cash from its operations remains a concern despite SBGL making good progress on that front in recent times.

Despite these valid concerns regarding Sibanye-Stillwater’s stock, it still offers a compelling valuation. SBGL is up 125% in the past six months, supported by swelling palladium and platinum prices, along with an overall positive sentiment for precious metals miners.

The stock trades at a discount to its peers, and while the lack of dividend may be disheartening at the moment, investors can draw solace from the company’s promise of “potentially resuming dividend payments in the latter half of 2020.”

Randgold’s merger with Barrick a rewarding proposition for shareholders 

Randgold Resources Limited [NASDAQ: GOLD] is an Africa-focused gold mining and exploration company. The company offers acquisition, development, and exploration of gold and other precious metal in Africa.

 

Headquartered in Jersey, Channel Islands, it was listed on the London and the NASDAQ stock exchanges until it merged with Canada’s Barrick Gold Corp in December 2018, in a deal worth $18.3 billion.

Barrick Gold Corporation [TSX: ABX] and [NYSE: GOLD] is the second-largest gold mining company in the world. The company engages in the production and sale of gold and copper, and has gold and copper mining operations and projects in 13 countries in North and South America, Africa, Papua New Guinea, Tanzania, Zambia and Saudi Arabia.

The company headquartered in Toronto, Canada had had 71 million ounces of proven and probable gold reserves at the end of 2019.

As mentioned above, Barrick is one of the world’s largest gold producers, and, like any other gold miners, is profiting from gold’s rising prices. With the yellow metal trading close to $1,700 per ounce, a price not seen since 2013, it is the perfect time for gold miners to make hay.

Experts believe that the gold prices will continue to be on the higher end of the spectrum in coming times as well as the after-effects of the pandemic linger. Soaring revenue could help Barrick reduce its debt to a considerable extent, with analysts expecting the gold miner to reach a net debt of zero in the 2020-2021-time frame.

At the end of Q3 2019, Barrick had a net debt of $3.16 billion, which further reduced to $2.22 billion at the end of Q4 2019. The sale of 90% stake in the Massawa mine in Senegal to Teranga Gold [OTCQX: TGCDF] for $380 million could further  help Barrick strengthen its balance sheet.

Barrick has some of the best margins in the industry, with its all-in sustaining costs (AISC), the highest among all of the senior gold miners. AISC is a crucial metric in gold mining industry which shows the cost associated with producing one ounce of gold.

AISCs are temporarily elevated at $923 in Q4 2019, better than the previous quarter’s $984 AISC, but considerably more than the $806 AISC average reported for the full-year of 2018.

However, with the gold prices hovering around $1,700 per ounce, Barrick would have little to complain when it comes to profit margin.

Another major reason why Barrick Gold is a must-own stock is that it has a well-diversified portfolio with modest growth capital requirement. Output is expected to remain at around 5 million ounces of gold per annum, with more than 40% of Barrick’s gold production (or roughly 2.2 million ounces) coming from a diverse group of mines in Nevada, a top mining jurisdiction.

The only disheartening thing for investors could be its mediocre dividend yield, coming in at just 1.1%. But then gold miners by and large are not known for impressive dividend payments. With gold prices at a record high, Barrick reducing its debt at an impressive rate, and increasing EBITDA (thanks to operational efficiencies and other cost savings), a low dividend yield should not matter much in the greater scheme of things.

With steady dividend increase and lucrative projects, Agnico Eagle is worth watching

Agnico Eagle Mines Limited [TSX: AEM] [NYSE: AEM] is a Canadian gold mining company with operations in Canada, Finland and Mexico and exploration and development activities in each of these countries as well as in the United States, Sweden and Nunavut.

Agnico Eagle Mines focuses on the exploration, development, and expansion of its gold properties primarily from underground operations. The company operates through three business units: Northern Business, Southern Business and Exploration.

Shares of Agnico Eagle Mines [NYSE: AEM], one of the largest gold mining companies by market capitalization, soared close to 55% in 2019. Unlike from 2014 to 16, AEM’s inability to sustain positive cash flow in 2017 and 2018 caused few worries in some quarters, but the management contended that it was owing to its huge capital investment in constructing two new mines in Nunavut, which the company Agnico Eagle characterizes as “the largest capital spending program in its history.”

However, with the completion of mines coming in the third quarter of 2019, and less capital requirement post that, Agnico believes it will regain its days of glory of generating strong free cash flow (FCF).

The company also announced a quarterly dividend hike of 40% to $0.175 per share for Q4 2019.

With the management commitment to keep hiking its dividends at a steady rate, and a good portfolio of lucrative projects in the pipeline, Agnico Eagle offers good growth prospects.

However, shares of AEM are currently trading at a slightly higher price, more so if we take into account the company’s dependence on leverage, with about $1.47 billion in net debt on its balance sheet as of the end of Q3 2019.

Irrespective of that, investors should keep their eyes open for a buy opportunity in the gold miner, should the company achieve stronger FCF growth in upcoming years and divert some of the capital towards improving its balance sheet.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.

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