2 Debt-Free, Dividend-Paying Gold Companies for Your TFSA

These two gold-related stocks, including Franco Nevada Corp. (TSX:FNV)(NYSE:FNV), may provide capital security and appreciation, dividend payouts, and protection from volatility and inflation.

| More on:
a pile of gold bars

The world has recently been surprised by the return of rising rates and inflation. The February shock to global equities and the return of volatility have pushed investors to rethink their investment strategies going forward, particularly since most investors today have not had to invest in a rising-rate environment.

In times of uncertainty and inflation, gold has historically been a powerful portfolio hedge. However, if you do not want to own the physical yellow metal, there are companies operating in the precious metal sector that have excellent balance sheets and decent yields.

Two possibilities in this space are Franco Nevada Corp. (TSX:FNV)(NYSE:FNV) and Centamin PLC (TSX:CEE).

Franco Nevada

While Franco-Nevada is not a cheap stock, trading at a P/E of around 90 at current prices, it is a stable and financially sound company that gives solid exposure to precious metals. Franco Nevada primarily provides funding to gold-mining companies, but it also has some exposure to silver miners and oil and gas producers.

In return for funds provided up front by Franco Nevada, companies are contracted to pay royalty streams for a set period of time. Franco Nevada is not exposed to mine-specific risks, and royalty streams come from multiple geographic areas provided by various companies.

This strategy provides greater diversification and has led to past returns that have been far more stable, both in good times and bad, than most individual gold companies, the Canadian global gold index, or the physical metal itself.

Franco Nevada pays a 1.3% dividend at current prices, which is paid out in U.S. dollars. The company has been raising its dividend every year since 2008, while maintaining a low payout ratio as a percentage of free cash flow. Franco Nevada grows its production by using its substantial free cash flow, which allows the company to operate debt-free.

It is this strategy that leaves Franco Nevada with a rock-solid balance sheet that allows it to thrive during cyclical downturns and to raise dividends in the future.


Centamin is a London-based mining company that operates mainly in Africa, with its primary mine in Egypt. Its excellent balance sheet and strong financial growth make this company an interesting gold play.

Recently, while other mining companies were cutting dividends and reducing debt, Centamin was increasing production and growing revenues. Centamin, like Franco Nevada, is debt-free, and presently pays a yield of just under 6%.

Given Centamin’s financial strength and production growth, it is likely that it will continue to pay a dividend in the near future. Centamin has a policy of paying a dividend of 30% of its free cash flow, ensuring balance sheet stability. Similar to Franco Nevada’s strategy, Centamin grows by using free cash flow as opposed to using debt to expand mining projects. This strategy has enabled Centamin to grow its production, revenues, and free cash flow during the recent downturn in commodities.

These two gold-related stocks may provide capital security and appreciation, dividend payouts, and possible protection from volatility and inflation.

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 Kris Knutson owns shares in Franco Nevada and Centamin.  

More on Dividend Stocks

Dividend Stocks

3 Dividend Stocks I’d Buy and Never Sell

Canadian National Railway (TSX:CNR)(NYSE:CNI) has many things going for it — the least of which is its history as an …

Read more »

Piggy bank next to a financial report
Dividend Stocks

TFSA Pension: 2 Top Stocks to Buy in a Self-Directed Retirement Fund

Canadian savers are using the TFSA to create their own retirement plan. Younger investors are building savings, while retirees are …

Read more »

Canadian Dollars
Dividend Stocks

Got $300? The 3 Best Passive-Income Stocks to Buy Now

A small but regular investment in top-quality dividend stocks could help you create a portfolio that will offer solid passive …

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

Top Stocks for Passive Income: How to Earn $366.75 Per Month Tax Free

Canadian pensioners and other investors focused on passive income have an opportunity to use their TFSA to hold top TSX …

Read more »

Payday ringed on a calendar
Dividend Stocks

2 Ways to Make $679 a Month in Passive Income

Passive income is defined as cash flow that’s enough to cover basic living expenses and is generated without any work. …

Read more »

Cogs turning against each other
Dividend Stocks

Boost Your Passive Income With These 3 Safe Dividend Stocks

With the inflation in the United States reaching a multi-decade high, Jerome Powell, the chairman of the Federal Reserve, has …

Read more »

money cash dividends
Dividend Stocks

3 Cheap Dividend Stocks That You Can Buy Under $30

The ongoing selloff provides long-term investors a chance to buy quality stocks at a lower price. Investors have seen a …

Read more »

Glass piggy bank
Dividend Stocks

RRSP Growth: 2 Top TSX Dividend Stocks to Own for Decades

The market pullback is giving RRSP investors a chance to buy some of Canada’s top dividend-growth stocks at reasonable prices. …

Read more »