Eight Dividend-paying Gold Investments to Purchase for Adding Shine to a Portfolio
By: Paul Dykewicz,
Eight dividend-paying gold investments to purchase can add shine and a defense against inflation to precious portfolios.
The eight dividend-paying gold investments to purchase as inflation hedges include three gold funds, three companies headquartered in Toronto, Ontario, a fourth stock based in Colorado and a fifth mine operation that calls Vancouver, British Columbia, its home. Those eight dividend-paying gold investments to purchase have lagged in attracting buyers for their shares, despite their sector’s reputation as safe haven from inflation.
Nonetheless, price inflation is nudging upward and the Biden Administration and the Democrat-led Congress plan $4.6 trillion in spending on infrastructure and a host of new programs that will deepen the U.S. national debt way past its current $28.7 trillion, up 23.2% from $23.3 trillion only 18 months ago. The Democrat-controlled U.S. House of Representatives approved a $3.5 trillion budget bill with the promise of a vote by Sept. 27 on a bipartisan $1.1 trillion infrastructure bill passed earlier in the U.S. Senate.
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Eight Dividend-paying Gold Investments to Purchase Feature Mining Companies and Funds Favored by Pension Fund Chief
“I favor having a portion of a portfolio in gold or gold-related investments now,” said Bob Carlson, a pension fund chief who heads the Retirement Watch investment newsletter. “I believe the markets aren’t pricing in the likelihood inflation will remain above the modest levels experienced before 2020. Gold is one of the investments that will benefit once investors realize inflation will be sustained at a higher level than is currently priced into the markets.”
Carlson expressed a preference for investing in physical gold, since higher risks are likely by taking on the additional volatility of owning shares of gold mining companies. In addition, Carlson said he does not favor exchange-traded funds (ETFs) for investing in gold miners, since most of the funds invest in an index.
One exception is iShares MSCI Global Gold Miners (RING). The ETF invests in large global gold miners by following the MSCI ACWI Select Gold Miners Investable Market Index, Carlson continued. The bulk of the fund usually is in only a few stocks, but recently 72% of the ETF was in the 10 largest positions, with Newmont Corp. (NYSE: NEM) composing 20.55% of the fund and Barrick Gold (NYSE: GOLD) accounting for 15.37%.
Chart courtesy of www.StockCharts.com
Eight Dividend-paying Gold Investments to Purchase Include ETF
Carlson conveyed that he prefers an actively managed fund that will assess the management and financial conditions of a company, as well as other factors, before purchasing the stock.
“My review of the actively managed gold mining shares funds, however, found that the funds don’t consistently outperform their indexes or the ETFs based on indexes,” Carlson told me. “In addition, many of the funds have broad definitions of gold and precious metals mining companies, so they don’t have to invest directly in gold miners when the market is down. They also can put part of their portfolios in other precious metals companies.”
A good choice for an aggressive investor is US Global Investors Gold & Precious Metals (USERX), Carlson said . The fund has a broad definition of gold and precious metals mining companies.
Chart courtesy of www.StockCharts.com
The potential advantage of the fund is that historically during bull markets it has much higher returns than other funds in its category and the relevant indexes, Carlson commented. The risk is that it also tends to underperform in bear markets for gold, he added.
The fund tends to invest in the mining companies with smaller capitalizations. This gives the fund higher potential gains in bull markets. It recently held 77 stocks, with 41% of its portfolio in the 10 largest positions.
OCMGX Joins Eight Dividend-paying Gold Investments to Purchase
Another fund to consider is OCM Gold Investor (OCMGX). The fund owns both the larger and smaller miners and typically is near the top of its Morningstar category. But it does tend to lag behind the index in bear markets.
Chart courtesy of www.StockCharts.com
The fund recently owned 57 stocks and had 57% of the fund in the 10 largest positions.
“The indexes include some companies you don’t want in your portfolio,” Carlson said.
Retirement Watch leader Bob Carlson takes questions from Paul Dykewicz.
Gold Fund Composite Has Yet to Signal a Buy in Gold Mining Stocks
“The trend over the past two weeks in gold mining stocks has been decidedly bullish,” said Jim Woods, editor of the Intelligence Report and Successful Investing newsletters, as well as the leader of the Bullseye Stock Trader advisory service. “Yet despite the recent move higher, we still have yet to see a significant break above key trend lines in our Gold Fund Composite.”
Woods tracks gold and precious metals miners with his indicator called the Gold Fund Composite, or GFC, which is a unique measure of mutual funds in the mining sector. When the GFC moves above key trend lines, it signals to Woods that it is time to “buy” gold stocks. Right now, the GFC remains in “sell” status.
“Although rising inflation and negative real interest rates are good for gold and gold mining stocks, the sector has been volatile and largely stuck in a rather tight trading range,” Woods explained. “The best way to approach owning gold mining stocks is to catch them on an uptrend and ride their often-robust momentum higher. Conversely, being in mining stocks can be very volatile, so you need both a stop loss on any positions and/or a trend-following plan such as the one in my Successful Investing newsletter.”
In the latest issue of Successful Investing, Woods wrote to his subscribers that gold and precious metals mining stocks, as measured by his GFC indicator, remain well below its key moving average, keeping the sector in “Sell” status. To move into “Buy” status, gold stocks would require a meaningful upward move.
Even though gold mining stocks are volatile both on the upside and downside, Woods cautioned that precious yellow metal may stay in “Sell” status. But the outlook could return to bullish if the U.S. dollar declines in value or inflation worsens, since both typically are positive for gold-related equities.
Paul Dykewicz interviews stock picker Jim Woods, editor of Successful Investing.
Eight Dividend-paying Gold Investments to Purchase Counter Inflation
Gold has struggled in the past year, with the precious metal attempting to advance beyond $1,900 several times but falling back as buying interest eased. Maybe it could be time for gold to shine again, Mark Skousen wrote to his Home Run Trader subscribers on Sept. 7.
Technical traders have noted that September tends to be a traditionally good time to buy gold. Even emerging markets guru Mark Mobius is recommending that investors put 10% of their portfolios in gold.
“Huge spending, multitrillion-dollar deficits and fears that the Federal Reserve will monetize the debt by printing more money are all bullish signals for gold,” commented Skousen, who also writes the Forecasts & Strategies investment newsletter, while leading the Five Star Trader, Fast Money Alert and TNT Trader advisory services. Skousen, named by SuperScholar.org as one of the Top 20 Most Influential Living Economists, clearly sees inflation climbing and has a track record of trying to buy into undervalued sectors and stocks before they soar.
Mark Skousen, a descendent of Ben Franklin, meets with Paul Dykewicz.
BoA Picks Five of Eight Dividend-paying Gold Investments to Purchase
Big gold entities that have rising free cash flow (FCF), defined as money available for a company to repay creditors or pay dividends and interest to investors after covering operating expenses, earned spots among BoA’s five gold stocks to buy. Inflationary pressures are starting to creep into cost structures for gold companies, just as they are for businesses in other industries, BoA recently wrote in a research note.
Canada’s Agnico Eagle Mines (NYSE: AEM), of Toronto, Ontario, operates gold mines in Canada, Finland and Mexico, while also pursuing exploration and development activities in the United States. The company gained a place among BoA’s five gold stocks to buy partly due to its expected improvement in second-half 2021 operating performance.
The investment firm gave AEM an $80 price objective, based on Agnico Eagle trading at 2.25 times BoA’s estimated net asset value for the stock. Historically, North American gold producers have traded between 1-3 times NAV, with 3 times NAV sometimes given to organically growth-oriented gold producers.
Risks of AEM falling short of attaining that price target include potential commodity price weakness, any inability to secure financing for expansion or development projects, unforeseen operating problems and political risk in the countries where the company operates. Possible reasons for Agnico Eagle to exceed the price objective include commodity price strength, better-than-forecast operating performance and favorable changes in the political environment in the regions where it operates, BoA wrote.
Chart courtesy of www.StockCharts.com
Barrick Gold Earns Spot Among Eight Dividend-paying Gold Investments to Purchase
Canada-based Barrick Gold (NYSE: GOLD), of Toronto, Ontario, is a mining company that produces gold and copper with 16 operating sites in 13 countries. Keys for Barrick Gold include higher production output, coupled with reduced costs, equaling enhanced free cash flow in second-half 2021, according to BoA.
The investment firm assigned a “buy” recommendation and a $29.00 price objective to Barrick Gold, based partly on the stock trading at 1.50 times its estimated NAV of $19.35 per share. That estimate hinges on a 5% discount rate and 10-year average gold and copper price forecasts of $1,785 per ounce and $3.72 per pound, respectively.
BoA wrote that it could not give Barrick Gold a higher target price / NAV multiple due to the company’s stable, rather than rising, gold output. Potential downside risks to Barrick Gold achieving its BoA’s price target are commodity price weakness, any inability to secure financing for expansion projects, unforeseen operating problems, political or legal challenges in the regions where it operates, rising capital and operating costs and delays in developing its growth projects.
Chart courtesy of www.StockCharts.com
Eight Dividend-paying Gold Investments to Purchase Include Franco-Nevada
Franco-Nevada (NYSE: FNV), a Toronto, Ontario, Canada-based, gold-focused royalty and streaming company with a diversified portfolio of cash-flow producing assets, benefits from favorable product price tailwinds. The stock also can appreciate amid mergers and acquisitions (M&As) in the gold arena, BoA wrote.
At a BofA Global virtual conference in mid-May 2021, FNV’s CEO noted the company’s Vale Royalty Debenture acquisition was a “tremendous opportunity” that gave Franco-Nevada exposure to world-class, long-life iron ore mines. The M&A focus has returned to gold and other precious metal opportunities, he added.
Franco-Nevada finances part of the capital spending on new mines for the companies it backs. BoA’s price objective for Franco-Nevada is US$163 per share and is based on the stock trading at 3.25 times the investment firm’s estimated NAV for the stock on a cash- and foreign-exchange-adjusted basis. The investment firm gives a US$50.15 NAV estimate to Franco-Nevada, based on a 5% discount rate and 10-year average gold price forecast of $1,785 per ounce.
Based on a strong balance sheet and low-cost asset base, BoA gave Franco-Nevada a premium multiple. Franco-Nevada also benefits from its seasoned management team, BoA opined.
Chart courtesy of www.StockCharts.com
Newmont Among Eight Dividend-paying Gold Investments to Purchase
Newmont Corporation (NYSE: NEM), based in Greenwood Village, Colorado, United States, is the world’s largest gold mining company. Created in 1921, Newmont owns gold mines in Nevada, Colorado, Ontario, Quebec, Mexico, the Dominican Republic, Australia, Ghana, Argentina, Peru and Suriname.
The company’s performance in the second half of 2021 is expected to improve due to higher gold output and reduced costs, as well as enhanced prospects in its Ghana operation, BoA wrote in a recent research note. BoA’s price objective for Newmont is $80.00 per share, based on the stock trading at 1.75 times BoA’s estimated NAV of $46.00 per share.
Possible reasons why Newmont may top BoA’s price target for it include stronger-than-forecast commodity prices, better-than-expected success at reducing costs, positive regulation and operating developments that outperform estimates. Potential hazards to Newmont meeting BoA’s price objective include the need to gain financing for expansion or development projects, unforeseen operating problems, political, legal or permitting challenges in areas where the company operates, rising capital and operating costs, and delays in developing growth projects. Nonetheless, BoA gave Newmont a buy recommendation.
Chart courtesy of www.StockCharts.com
List of Eight Dividend-paying Gold Investments to Purchase Includes Wheaton Precious Metals
Canada’s Wheaton Precious Metals (NYSE: WPM), of Vancouver, British Columbia, boasts “strong free cash flow funding for its capital allocation priorities in second-half 2021. BoA’s price objective for Wheaton is $55.00 per share and is based on the stock trading at 2.5x times the investment firm’s estimated net asset value (NAV) for the company.
BoA gave Wheaton Precious Metals a buy recommendation and a NAV of $22.00 per share, based on a 5% discount rate and a 10-year average silver and gold price forecast of $27 per ounce and $1,785 per ounce, respectively.
Possible risks to Wheaton Precious Metals attaining BoA’s price target for it include continued commodity price weakness, unforeseen operating problems at the mines on which its silver streams are based, financing challenges, political or legal challenges where it operates and project delays.
In a recent conference call with WPM management, its leaders said they see much new pressure on streaming opportunities. Even though Wheaton Precious Metals Corporation is the world’s largest silver streaming company, with fourteen silver purchase agreements, it has increased its share of gold production with new purchase agreements.
Chart courtesy of www.StockCharts.com
Potential risks may hurt the company’s free cash flow and dividend payments, BoA wrote. Specific concerns include possible increases in inflation that boost the company’s costs and hamper its investment plans.
Eight Dividend-paying Gold Investments to Purchase Navigate Risks from Delta Variant of COVID-19
The highly transmissible Delta variant of COVID-19 poses risks to gold mining companies that have workers attempting to navigate the risk of the virus while toiling at sites where they try to extract the precious metal from the ground and turn it into a profitable business. The Centers for Disease Control and Prevention (CDC) blames the variant for a rising rate of cases and deaths in recent months.
That new variant’s danger seems to be spurring a growing number of people to become vaccinated from COVID-19. As of Sept. 10, 208,704,230 people, or 62.9% of the U.S. population, have received at least one dose of a COVID-19 vaccine. The fully vaccinated group totals 177,899,458 people, or 53.6%, of the U.S. population, according to the CDC.
COVID-19 cases worldwide, as of Sept. 10, totaled 223,610,652 and led to 4,612,196 deaths, according to Johns Hopkins University. U.S. COVID-19 cases thus far have reached 40,735,067 and caused 656,309 deaths, John Hopkins University researchers reported. America has the dreaded distinction as the nation with the most COVID-19 cases and deaths.
The eight dividend-paying gold investment to purchase as a hedge against increasing inflation may help to brighten the shine of portfolios owned by investors who can choose the right times to enter and exit these volatile equities.
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Paul Dykewicz
Connect with Paul Dykewicz
Paul Dykewicz, www.pauldykewicz.com, is a respected, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other investment reports.
Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. In addition, Paul serves as a commentator about investing, economics, business news, politics and motivational guidance.
Paul earned a master’s degree in business administration with a focus on finance at Baltimore’s Johns Hopkins University, where he was elected to two terms as president of its Finance Club. He earlier received a master’s degree from Michigan State University’s School of Journalism, where he was inducted into the Kappa Tau Alpha honor society. Paul received a bachelor’s degree from the University of Michigan in Ann Arbor, focusing on political science, business and economics.
