In This Article:
Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest.
As regular readers will know doubt opine, this column has many weaknesses and one of them is the classic investor failing of selling winners too early (and holding to losers for too long, for that matter).
After a capital gain of two thirds in the past year, the temptation to take profits on Fresnillo is there. We shall resist and hold on to the silver miner, and not just because shareholders who are on the register as of next Monday (14 April) are due to collect a final dividend of $0.2610 a share and a special distribution of $0.4180 on May 30 in the wake of last month’s full-year results (March 4).
Those dividends are welcome, as they will take our total yield on the stock to some 10pc since our initial study, but capital gains are really the name of the game at Fresnillo. Even modest changes in silver and gold prices will lead to big increases in profits and, for the moment, both precious metals are motoring.
Fresnillo is the world’s largest silver producer, based on 2024’s output of 56.3m ounces, while is also produced 631,573 ounces of gold last year. At the time of writing, gold trades at a new all-time high of $3,155 an ounce and silver is fast approaching a 12-year peak just north of $34 an ounce.
The danger is that both metals roll over and their prices go lower, since that would crimp profits and dividends just as quickly as the last year’s gains have helped them. In the past year, the share price may be up by two thirds, but the forecast one-year forward dividend yield is now 3.8pc, up from 1.7pc 12 months ago, while the one-year forward price-to-earnings ratio is now barely 15 times, down from 28 times.
This is because profit forecasts have rocketed on the back of higher commodity prices. Fresnillo’s forecasts do not assume much output growth in the near term, so the metals (and careful cost management) will dictate the trajectory of profits, cash flow and dividends from here.
Our crystal ball is no better than anyone else’s, but the trend may just be our friend. Financial markets had priced in a cooling of inflation, steady economic growth and lower interest rates. President Trump’s trade and tariff policies are sparking worries that growth inflation could prove sticky, with the result that interest rates may not come down as fast as hoped, even if growth stumbles.
Former certainties are now looking like anything but that. Microsoft is at the epicentre of the AI industry, as a heavy spender on data centres and a big backer of OpenAI, but its shares are no higher than they were in January 2024. Silver and gold are both up by 50pc over the same period.