When digging into dividend-paying stocks, investors often overlook the gold sector. Since gold mining is capital-intensive, mining companies are usually uninterested in returning cash to shareholders as they must continually reinvest in their businesses, ensuring they remain profitable amid volatile gold prices. But this doesn't mean that dividend-seeking investors should completely forsake companies dealing in the yellow stuff.
Unlike miners, which are actually pulling the metal out of the ground, royalty and streaming companies such as Royal Gold (NASDAQ: RGLD) and Franco-Nevada (NYSE: FNV) are basically specialized financiers. Providing up-front payments to miners, they receive, in exchange, the right to purchase the mined metal at a preset price or to receive a percentage of mineral production. Although some gold mining companies represent decent opportunities, the better option for investors is a royalty and streaming company. But which one to choose?
Image source: Getty Images.
Digging into the past
If you're in search of the best dividend stock, it's worth taking a look in the rearview mirror. Of course, a company's previous performance doesn't guarantee its future performance, but it can provide some insight into the company's culture.
FNV dividend data by YCharts.
Clearly, Royal Gold and Franco-Nevada have both demonstrated a strong commitment to raising their dividends. What's more noteworthy, however, is that they have done so amid volatility in the price of gold. Unlike miners, which must tighten their purse strings when the price of gold falls too precipitously, royalty and streaming companies are less susceptible to the market's whims. For example, over the same period, Barrick Gold (NYSE: ABX) and Newmont Mining (NYSE: NEM), two of the market's largest gold miners, reduced their dividends by 85% and 25%, respectively.
Image source: Royal Gold investor presentation, Dec. 7, 2017.
Of the two royalty and streaming companies, though, it's Royal Gold that glitters a little more brightly. Whereas Franco-Nevada has a shorter history, having held its IPO in December 2007, Royal Gold can trace its history for rewarding shareholders back to 2001.
... and looking into the future
A culture that supports dividend growth is certainly desirable, but it means little if the company doesn't foresee growth on the horizon. For Royal Gold and Franco-Nevada, though, it appears that prospective growth is not a concern. Of the 195 property interest in Royal Gold's portfolio, there are 40 mineral-producing assets. In the near-term, Royal Gold expects two projects to commence gold-producing operations in 2018: Cortez Crossroads and the Penasquito Pyrite Leach Project. Looking farther down the line, we find Royal Gold has 21 projects in development and 134 projects in the evaluation and exploration phases.