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3 Dividend Stocks to Escape the Volatility in Gold Prices
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Gold has been a sought-after metal not only for jewelry but for investment purposes as well. It is always considered a “safe haven” for investors during economic and geopolitical uncertainties. Demand remains strong as the use of gold across energy, healthcare and technology sectors is rising. Considering that gold prices are dependent on a gamut of factors like demand and supply, inflation, movement in the U.S. dollar, interest rates and geopolitical issues, it tends to be volatile. So far this year, the pricing scenario has not been in favor of the yellow metal, having lost 5% of its value and currently languishing at around $1,720 an ounce.
Amid the volatility in gold prices, investing in high-quality dividend stocks like Barrick Gold (GOLD - Free Report) , Yamana Gold and Gold Resource (GORO - Free Report) might fetch investors promising returns.
Gold’s Choppy Ride So Far
Gold had started the year on a promising note at around $1,800 an ounce and attained a high of $2,078 an ounce in March. Fueled by the Russia-Ukraine war and rising inflation, the precious metal notched up an 8% gain in the first quarter of 2022, marking its best quarterly performance since the second quarter of 2020. However, gold soon reversed its course and ended up declining 6% in the second quarter, weighed on by rising interest rates and a surging U.S. dollar.
The downtrend continued with gold prices dipping 2% further in August due to continued higher yields and a stronger U.S. dollar. Gold recently touched the threshold level of $1,700 an ounce, the lowest level in more than two years.
In addition to lower gold prices, the players in the Gold Mining industry are grappling with escalating production costs, a shortage of skilled workforce and supply-chain issues. As they have no control over gold prices, they continue to focus on improving sales volume and reducing unit net cash costs.
While rate hikes create headwinds for gold for the rest of the year, continued inflation and geopolitical risks will likely drive demand for gold as a hedge. Underperformance of stocks and bonds may also be positive for gold. Also, demand for physical gold is seasonally higher in India in the latter part of the year, aided by the festival and wedding season, which will likely help lift prices.
The Zacks Mining - Gold industry has declined 15.8% so far this year in tandem with gold prices. It has, however, fared better than the S&P 500's decline of 16.7%.
Image Source: Zacks Investment Research
Considering the uncertainties prevalent in the gold-mining industry, does it imply that investors should shun the stocks belonging to this industry? The answer is a firm no. We believe that now is a good time to consider dividend-paying, mining-gold stocks that offer stability and a steady avenue of income.
How to Pick the Right Dividend Stocks
We ran the Zacks Stocks Screener and shortlisted the gold-mining stocks, which have a dividend yield in excess of 2% and have also grown their dividends over the past five years. Plus, these have a sustainable dividend payout ratio of less than 60% and a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our Picks
Barrick Gold: GOLD pays out a quarterly dividend of 41 cents ($1.64 annualized) per share, which gives it a 5.34% yield at the current stock price. It has a payout ratio of 37%, with a five-year dividend growth rate of 33.3%. (Check Barrick Gold’s dividend history here).
Barrick is expected to benefit from major exploration programs. Its growth projects, namely Turquoise Ridge third shaft, Goldrush and the Pueblo Viejo plant and tailings expansion are currently on track. These projects are advancing per schedule and within budget, underpinning the next-generation profitable production from the core region. Also, the combination of Turquoise Ridge and Twin Creeks delivers a tier-one asset with another in the making at Goldrush. GOLD has cut its total debt by more than 50% over the past three years, which is commendable and will aid in lowering its interest expenses.
Yamana Gold: AUY pays out a quarterly dividend of 3 cents (12 cents annualized) per share, representing a payout ratio of 34%. Yamana Gold has a 2.68% yield at the current stock price with a five-year dividend growth rate of 65.4%. (Check Yamana Gold’s dividend history here).
Following its initial capital spending and development phase from 2003 to 2006, AUY has paid out dividends since 2007. Dividends have aggregated to more than $1 billion over the years. Yamana Gold expects production to exceed 1,000,000 Gold equivalent ounces in 2022, led by standout performances by Canadian Malartic, Jacobina, Cerro Moro and El Peñón.
Production at Jacobina is expected to maintain the streak of increasing numbers for the ninth consecutive year. The trend is likely to continue in the coming years owing to the phased expansion strategy and the exploration programs aimed at generating a significant value from the property. Also, if the pending merger with Gold Fields Limited (GFI) comes to fruition, it will create a global gold major with a diversified portfolio of high-quality, long-life flagship assets across some of the world’s most established gold-mining jurisdictions with tangible near- and long-term opportunities.
Gold Resource: GORO pays out a quarterly dividend of 1 cent (annualized payout of 4 cents per share, reflecting a payout ratio of 31%. It has a five-year dividend growth rate of 22.9% and a dividend yield of 2.30%. (Check Gold Resource’s dividend history here).
Gold Resource has been paying out dividend since it started commercial production, returning around $121 million to its shareholders over the past 11 years. GORO is regularly reporting strong production results at the Don David Gold Mine in Mexico. Grades and improved recoveries helped deliver another quarter of above 10 thousand gold equivalent ounces.
The acquisition of Aquila Resources in 2021 provided GORO with the ownership of the Back Forty Project in Michigan. The project has a polymetallic (gold, silver, copper, lead and zinc) Volcanogenic Massive Sulfide deposit. Gold Resource is currently advancing a definitive feasibility study for the project. GORO is a low-cost producer and has the potential to curb costs further by improving operating practices.
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3 Dividend Stocks to Escape the Volatility in Gold Prices
Gold has been a sought-after metal not only for jewelry but for investment purposes as well. It is always considered a “safe haven” for investors during economic and geopolitical uncertainties. Demand remains strong as the use of gold across energy, healthcare and technology sectors is rising. Considering that gold prices are dependent on a gamut of factors like demand and supply, inflation, movement in the U.S. dollar, interest rates and geopolitical issues, it tends to be volatile. So far this year, the pricing scenario has not been in favor of the yellow metal, having lost 5% of its value and currently languishing at around $1,720 an ounce.
Amid the volatility in gold prices, investing in high-quality dividend stocks like Barrick Gold (GOLD - Free Report) , Yamana Gold and Gold Resource (GORO - Free Report) might fetch investors promising returns.
Gold’s Choppy Ride So Far
Gold had started the year on a promising note at around $1,800 an ounce and attained a high of $2,078 an ounce in March. Fueled by the Russia-Ukraine war and rising inflation, the precious metal notched up an 8% gain in the first quarter of 2022, marking its best quarterly performance since the second quarter of 2020. However, gold soon reversed its course and ended up declining 6% in the second quarter, weighed on by rising interest rates and a surging U.S. dollar.
The downtrend continued with gold prices dipping 2% further in August due to continued higher yields and a stronger U.S. dollar. Gold recently touched the threshold level of $1,700 an ounce, the lowest level in more than two years.
In addition to lower gold prices, the players in the Gold Mining industry are grappling with escalating production costs, a shortage of skilled workforce and supply-chain issues. As they have no control over gold prices, they continue to focus on improving sales volume and reducing unit net cash costs.
While rate hikes create headwinds for gold for the rest of the year, continued inflation and geopolitical risks will likely drive demand for gold as a hedge. Underperformance of stocks and bonds may also be positive for gold. Also, demand for physical gold is seasonally higher in India in the latter part of the year, aided by the festival and wedding season, which will likely help lift prices.
The Zacks Mining - Gold industry has declined 15.8% so far this year in tandem with gold prices. It has, however, fared better than the S&P 500's decline of 16.7%.
Image Source: Zacks Investment Research
Considering the uncertainties prevalent in the gold-mining industry, does it imply that investors should shun the stocks belonging to this industry? The answer is a firm no. We believe that now is a good time to consider dividend-paying, mining-gold stocks that offer stability and a steady avenue of income.
How to Pick the Right Dividend Stocks
We ran the Zacks Stocks Screener and shortlisted the gold-mining stocks, which have a dividend yield in excess of 2% and have also grown their dividends over the past five years. Plus, these have a sustainable dividend payout ratio of less than 60% and a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our Picks
Barrick Gold: GOLD pays out a quarterly dividend of 41 cents ($1.64 annualized) per share, which gives it a 5.34% yield at the current stock price. It has a payout ratio of 37%, with a five-year dividend growth rate of 33.3%. (Check Barrick Gold’s dividend history here).
Barrick Gold Corporation Dividend Yield (TTM)
Barrick Gold Corporation dividend-yield-ttm | Barrick Gold Corporation Quote
Barrick is expected to benefit from major exploration programs. Its growth projects, namely Turquoise Ridge third shaft, Goldrush and the Pueblo Viejo plant and tailings expansion are currently on track. These projects are advancing per schedule and within budget, underpinning the next-generation profitable production from the core region. Also, the combination of Turquoise Ridge and Twin Creeks delivers a tier-one asset with another in the making at Goldrush. GOLD has cut its total debt by more than 50% over the past three years, which is commendable and will aid in lowering its interest expenses.
Yamana Gold: AUY pays out a quarterly dividend of 3 cents (12 cents annualized) per share, representing a payout ratio of 34%. Yamana Gold has a 2.68% yield at the current stock price with a five-year dividend growth rate of 65.4%. (Check Yamana Gold’s dividend history here).
Yamana Gold Inc. Dividend Yield (TTM)
Yamana Gold Inc. dividend-yield-ttm | Yamana Gold Inc. Quote
Following its initial capital spending and development phase from 2003 to 2006, AUY has paid out dividends since 2007. Dividends have aggregated to more than $1 billion over the years. Yamana Gold expects production to exceed 1,000,000 Gold equivalent ounces in 2022, led by standout performances by Canadian Malartic, Jacobina, Cerro Moro and El Peñón.
Production at Jacobina is expected to maintain the streak of increasing numbers for the ninth consecutive year. The trend is likely to continue in the coming years owing to the phased expansion strategy and the exploration programs aimed at generating a significant value from the property. Also, if the pending merger with Gold Fields Limited (GFI) comes to fruition, it will create a global gold major with a diversified portfolio of high-quality, long-life flagship assets across some of the world’s most established gold-mining jurisdictions with tangible near- and long-term opportunities.
Gold Resource: GORO pays out a quarterly dividend of 1 cent (annualized payout of 4 cents per share, reflecting a payout ratio of 31%. It has a five-year dividend growth rate of 22.9% and a dividend yield of 2.30%. (Check Gold Resource’s dividend history here).
Gold Resource Corporation Dividend Yield (TTM)
Gold Resource Corporation dividend-yield-ttm | Gold Resource Corporation Quote
Gold Resource has been paying out dividend since it started commercial production, returning around $121 million to its shareholders over the past 11 years. GORO is regularly reporting strong production results at the Don David Gold Mine in Mexico. Grades and improved recoveries helped deliver another quarter of above 10 thousand gold equivalent ounces.
The acquisition of Aquila Resources in 2021 provided GORO with the ownership of the Back Forty Project in Michigan. The project has a polymetallic (gold, silver, copper, lead and zinc) Volcanogenic Massive Sulfide deposit. Gold Resource is currently advancing a definitive feasibility study for the project. GORO is a low-cost producer and has the potential to curb costs further by improving operating practices.