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We hear hot debates on whether current gold prices represent a bubble or if gold still deserves safe-haven status. The historically high prices, volatility and nontraditional correlation of gold with stocks have prompted these discussions. But arguments both in favor of and against gold seem valid, confusing a buyer seeking a hedge against inflation.
Let’s not go into the details of the gold price debate or take sides. Instead, we suggest you to give attention to some gold mining stocks that may hedge your investment against inflation and offer more security than gold.
Some investors had bad experiences with gold mining stocks. The common understanding that gold mining stocks are leveraged to the price of gold had attracted many investors when the metal started its bull run in 2002. But for several reasons (including heavy share dilution, weak free cash flow, redirection of investors’ money toward gold and the absence of good managers after a 20-year bear market), the stocks failed to keep up with the performance of the metal. While gold prices appreciated about six folds over the last 10-year bull period, gold mining stocks only approximately doubled.
However, the industry landscape has changed a lot and some of the gold miners are now well prepared to explore. Huge capital investments by major mining companies have already started paying off and many of the companies are witnessing higher profit margins and free cash inflows, as a majority of the cost of production has already been absorbed over the last 10 years.
Moreover, the bull market has attracted many mining experts and managers who moved away from the industry during the 20-year bear phase. This has increased chances of new discoveries even more.
Most importantly, some major gold miners are now playing smart by converting their earnings into high dividends to attract investors instead of reinvesting the money in exploration and development. We expect these companies to continue offering high dividends if they win investors’ confidence. This would, in turn, help the miners keep afloat and concentrate more on production. Also, we see little or perhaps no risk from these companies in terms of dividend suspension in the near- to mid-term.
Consequently, the dividend income and price appreciation yield from these shares could help you hedge your money against inflation. So, betting on these undervalued gold stocks could make you see more glitter than the yellow metal.
Let’s take a quick look on four dividend paying gold mining stocks that could be better alternatives to gold for the long haul.
Founded in 1953, Agnico-Eagle Mines engages in the exploration, development, and production of mineral properties in Canada, Finland, and Mexico. The company primarily explores gold. Silver, copper, zinc and lead are also on its mining list.
Annual Dividend: $0.62 per share
Dividend Yield: 1.50%
Dividend Increase (Year over Year): 250%
Expected Earnings Growth Rate: 10.00%
Expected Sales Growth Rate: 36.80%
Established in 1983, Barrick Gold Corporation engages in the production and sale of gold, as well as related activities such as exploration and mine development. The company has a portfolio of 25 operating mines and a pipeline of projects located in North America, South America, the Australia Pacific region and Africa.
Annual Dividend: $0.60 per share
Dividend Yield: 1.20%
Dividend Increase (Year over Year): 50%
Expected Earnings Growth Rate: 58.21%
Expected Sales Growth Rate: 18.97%
Since its inception in 1980, Yamana Gold engages in the mining of gold and other precious metals. It also carries out related activities, including exploration, extraction, processing and reclamation. The company's portfolio includes 7 operating gold mines, namely Chapada; El Penón; Jacobina; Gualcamayo; Minera Florida; Fazenda Brasileiro.
Annual Dividend: $0.20 per share
Dividend Yield: 1.20%
Dividend Increase (Year over Year): 67%
Expected Earnings Growth Rate: 14.90%
Expected Sales Growth Rate: 47.38%
Founded in 1954, Goldcorp Inc. engages in the acquisition, exploration, development and operation of precious metal properties in Canada, the United States, Mexico, and Central and South America. It produces and sells gold, silver, copper, lead and zinc.
Annual Dividend: $0.41 per share
Dividend Yield: 0.80%
Dividend Increase (Year over Year): 133%
Expected Earnings Growth Rate: 64.72%
Expected Sales Growth Rate: 20.88%
With all the arguments about gold having very few industrial uses and being an idle asset since it does not pay dividends or interest, you may have second thoughts about investing in gold. In that case, the four stocks mentioned above could better serve your investments purposes.
Most importantly, reserves or production of these four gold mines remain unhedged, implying their strong revenue exposure to the ongoing bullish gold market. Also, this ascertains that these stocks do not need to spend billions of dollars to come out of their bad hedge positions. So, there is a good chance of these stocks overtaking gold itself as a successful investment.
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