The current global economic scenario features plenty of headwinds to keep investors on edge - including ongoing conflict in the Middle East, “higher for longer” interest rates, and a mixed start to Q3 earnings season. Unsurprisingly, “safe haven” assets have been in higher demand lately, with bond yields popping to multi-year highs, and December gold futures (GCZ23) spiking back above the $2,000 level to end last week.
Gold's reputation for relative safety is due to its status as a store of value, as well as a hedge against inflation. So, while the S&P 500 Index ($SPX) has dropped 3.7% in the past month - and is now 10% off its highs - the SPDR Gold Shares (GLD) has tacked on 6.9% in the same time frame.
For investors looking to shift some capital into gold or gold stocks, there are plenty of choices - but here's one top-rated pick that's pulled back from its highs, offers a solid dividend yield, and provides plenty of exposure to the precious metal.
About Royal Gold
Royal Gold (RGLD) is a gold royalty streaming company. This basically means that the company provides upfront payments to gold miners in exchange for a right to purchase a portion of their future gold production at a pre-determined price. This business model allows Royal Gold to participate in the upside of gold production without having to bear the costs and risks associated with mining.
Founded in 1981, Royal generates income from two sources, namely - Stream Payments and Royalty Payments. The company currently commands a market cap of about $6.91 billion.
Royal Gold's share price is off more than 4% on a year-to-date basis, lagging the broader S&P, as well as GLD. Longer-term, though, the stock stacks up more favorably; its 5-year gain of 50% is roughly in line with the S&P, while its 10-year return of 129% easily bests a 42% gain for GLD.
Here are three reasons why Royal Gold is a precious metals stock worth considering at current levels:
1. Solid Earnings with Revenue Visibility
In the most recently reported quarter, RGLD's revenues came in at $144 million, down 1.6% from the prior year. Royalty revenues were off 8.5%, partially offset by a 1.1% increase in stream revenues to $106 million. Meanwhile, EPS of $0.88 came in line with the consensus estimate.
Looking ahead, RGLD is expected to report quarterly EPS of $0.78 this Wednesday, Nov. 1, with revenue forecast to arrive at $127.29 million. As a group, analysts have downwardly revised their forecast for Royal Gold's upcoming earnings six times in recent months, pointing to relatively low expectations for next week's results.
As the name of the company suggests, Royal Gold derives a substantial chunk of its revenues from gold, at 77%. Other metals, such as silver at 15% and copper at 6%, round out Royal Gold's portfolio.
Looking ahead, the Pueblo Viejo Expansion with partner Barrick (GOLD) is expected to reach full capacity soon, and has extended the mine's life to 2044. Royal Gold has a 7.5% gold stream and 75% silver stream on the mine, which is expected to produce upwards of 800,000 ounces annually.
2. A Strong History of Dividend Payments
Currently, Royal Gold offers a dividend yield of 1.42%. That may not be the highest yield among gold stocks, but the payout is backed by an impressive history: RGLD has paid an annual dividend consistently since June 2000, highlighted by increases every year since 2002.
3. Analysts See Growth Ahead
Analysts are quite upbeat about Royal Gold. They are expecting the company to report earnings growth of 8.5% in the current quarter and about 2% in fiscal 2023, followed by 19.4% EPS expansion in the next fiscal year.
Overall, analysts have a “Moderate Buy” rating on the stock with a mean target price of $139. This represents expected upside potential of about 32% from current levels. Out of nine analysts covering the stock, 2 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, 4 have a “Hold” rating, and 1 has a “Moderate Sell” rating.
