A Different Way to Invest in Gold and Silver

Royalty and streaming companies are great for risk-averse investors who want to add precious metals to their portfolios.

The Motley Fool

Instead of investing in mining companies, you can invest in gold and silver through royalty or streaming companies. A royalty company pays an upfront fee to help fund the development of different mines. In exchange, it gets the right to buy the precious metal mined.

Streaming companies give upfront financing for mining companies requiring capital and in return receive streaming agreements, or Net Smelter Return royalties. Typically, royalty and streaming companies offer less risk than operating gold enterprises. Here are two companies to consider.

1. Franco-Nevada

Franco-Nevada (TSX: FNV)(NYSE: FNV) concentrates on gold. It is both a royalty and a streaming company. The company also has interests in platinum group metals, or PGMs, and additional resource assets. Franco-Nevada is the leading gold royalty and streaming company by both gold revenue and the number of gold assets.

As the company stated in its 2014 Asset Handbook, “Franco-Nevada has substantial cash with no debt and is generating free cash flow that is being used to expand its portfolio and to pay dividends.”

For Q1 2014, Franco-Nevada had 65,836 gold equivalent ounces. This represents an 11.8% increase over Q1 2013. The company also earns some revenue from oil and gas assets. It earned 79% of its revenue from precious metals, with 67% from gold and 12% from PGMs. In addition, 78% of its revenue was from North America and Australia, with 35% from Canada, 21% from the U.S., 17% from Mexico, and 5% from Australia.

Last month, Franco-Nevada declared an increased quarterly dividend of $0.20 per share. This represents an 11.1% increase from the prior $0.06 per share monthly dividend.

2. Silver Wheaton

Silver Wheaton (TSX: SLW)(NYSE: SLW) is the largest precious metals streaming company globally. Its forecast 2014 annual attributable production is approximately 36 million silver equivalent ounces. This includes 155,000 ounces of gold. By 2018, it anticipates annual attributable production to grow considerably to around 48 million silver equivalent ounces. This includes 250,000 ounces of gold.

At present, Silver Wheaton has the silver produced by the San Dimas, Yauliyacu, Peñasquito, and Barrick mines. It also has the gold produced by the 777, Sudbury, and Salobo mines. In addition, it has the silver and gold produced by its “other” mines segment and corporate operations.

Recently, Silver Wheaton announced that it joined the World Gold Council, the market development organization for the gold industry. Silver Wheaton has made acquisitions of gold streams from Vale (NYSE: VALE) and HudBay Minerals (TSX: HBM)(NYSE: HBM). Consequently, Silver Wheaton has witnessed a major increase in its current and forecast future gold production.

On May 5, 2014, the company’s board declared a dividend of $0.07 per common share. Silver Wheaton’s stated dividend policy is that the quarterly dividend will be equal to 20% of the average of the previous four quarters’ operating cash flow.

Can’t “dig” investing directly in mining companies that actually dig into the ground? Consider royalty and precious metals streaming companies as an alternative way to add gold and silver to your stock portfolio.

Fool contributor Michael Ugulini has no positions in any of the companies mentioned in this article. Silver Wheaton is a recommendation of Stock Advisor Canada.

More on Investing

man calculates finances
Dividend Stocks

With Interest Rates Rising, Are Canadian Dividend Stocks Still Worth Buying?

Three questions to ask before investing in a dividend stock, especially as bond yields grow more attractive.

Read more »

woman looks at iPhone
Dividend Stocks

Telus’s Dividend Explained: Is It Safe to Buy for Income Today?

Here’s why Telus’s 6.2% dividend looks more sustainable today and how paying out less could make it a better long-term…

Read more »

hiker with backpack in the mountains
Dividend Stocks

How a $20,000 TFSA Could Fund Your Retirement

These two dividend-paying TSX stocks could help turn a $20,000 TFSA into a stronger source of retirement income.

Read more »

concept of growth
Dividend Stocks

3 TSX Dividend Stocks for Reliable Passive Income

These TSX dividend stocks are backed by established operations, consistent earnings growth, and a sustainable payout ratio.

Read more »

dreaming of financial success
Dividend Stocks

Here’s a 4.2% Monthly Dividend Stock to Help Fund Your Retirement Dreams

This Canadian monthly dividend payer’s attractive 4.2% dividend yield, growing property income, and high occupancy could help you build a…

Read more »

man gives stopping gesture
Dividend Stocks

A No-Spend Month Could Jump-Start Your Emergency Savings

Join the No-Spend Month challenge to take control of your finances and discover the benefits of minimal spending habits.

Read more »

Young adult concentrates on laptop screen
Dividend Stocks

Opening Your First Investing Account in Canada: What to Know Before You Click “Apply”

Don’t chase returns without first understanding risks.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

A 4.9% Passive-Income Stock I’d Put My Whole TFSA Contribution Into

This Canadian dividend stock’s 4.9% dividend yield, strong cash flow growth, and expanding infrastructure investments make it an attractive passive-income…

Read more »