Don’t Let its Delisting From the TSX Deter You From Buying Royal Gold, Inc.

Take advantage of higher gold prices with Royal Gold, Inc. (NASDAQ:RGL).

| More on:
The Motley Fool

Precious metals streamer Royal Gold, Inc. (NASDAQ:RGL) recently completed its delisting from the Toronto Stock Exchange, but this shouldn’t deter investors from adding it to their portfolios.

You see, growing economic uncertainty and geopolitical insecurity are all fueling market volatility, which have triggered a flight to safety among investors as they seek to hedge their bets against the increasing likelihood of a market correction. One way in which investors have been doing this has been to boost their exposure to gold. Royal Gold offers a superior lower-risk alternative means of doing so. 

Now what?

A key benefit of investing in a precious metal streamer is their ability to more easily diversify their asset base than miners.

Royal Gold, like many of its peers, has a highly diversified portfolio of royalty and streaming agreements spanning mines across five continents. The majority of its revenue comes from Canada, the U.S., Mexico, and Chile. These agreements also give Royal Gold a long-life asset base with reserves of 86 million ounces of gold and 780 million ounces of silver.

Meanwhile, it derives 85% of its revenue from gold; the majority of revenue is earned in the relatively low-risk jurisdictions of Canada, the U.S., and Chile.

Despite its strengths, Royal Gold reported some disappointing third-quarter 2016 results, which can be attributed to it recording US$99 million in impairment charges during the quarter.

Nonetheless, this has cleared the decks for 2016. Along with the significant increase in the price of gold, Royal Gold’s bottom line will enjoy a healthy bump.

Then there is Royal Gold’s low-cost structure with cost of sales of US$344 per ounce, well below the realized average price per ounce of gold sold. This allows it to generate a solid margin for every ounce of gold sold, particularly with the average price per ounce for the fiscal fourth quarter ending June 30, 2016, being 8% higher than the previous quarter.

It is also worth noting that Royal Gold’s voluntarily delisting from the Toronto Stock Exchange will also help to boost its profitability as this action will reduce its administrative costs.

So what?

Precious metal streamers are one of the best ways for investors to gain exposure to gold and silver. They not only offer the same leverage to gold as the miners, but they do so with far lower risk, because they are not in the business of operating mines.

Royal Gold’s low-cost structure is far lower than that of gold miners, meaning that as the price of gold rises, its profitability will really take off, giving its bottom line a healthy bump and ultimately causing its share price to appreciate. While waiting for this to occur, investors will be rewarded by its regular dividend payment, which yields just over 1%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

More on Metals and Mining Stocks

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »

Canadian Dollars bills
Metals and Mining Stocks

2 Cheap Canadian Stocks Under $20 to Buy This November

Cheap TSX stocks such as Endeavour Silver are trading at an attractive valuation in November 2024.

Read more »

nugget gold
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for its 1.06% Dividend Yield?

A top gold stock with a modest yield is a buy for its lengthy dividend-growth streak.

Read more »

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »