Why Every Portfolio Needs a Streamer

Streamers such as Wheaton Precious Metals Corp. (TSX:WPM)(NYSE:WPM) offer investors advantages over traditional miner investments.

| More on:
The Motley Fool

If you’ve ever considered investing in precious metals, but have resisted the urge to invest directly in a mining stock, there’s another option that has significantly less risk and, in some ways, greater rewards.

Why streamers make great investments

Streamers such as Wheaton Precious Metals Corp. (TSX:WPM)(NYSE:WPM) are unique investments in that they are directly impacted by the price of precious metals such as gold and silver, much like the traditional miners.

The difference between streamers and miners, however, comes in the form of the business model each has adopted.

Streamers provide upfront capital to the traditional miners, who use those funds to build, staff, and begin mining operations. In exchange for that upfront investment, streamers are allocated a certain allotment of the metals extracted from the mine, which can be purchased by the streamer at a discounted rate.

That discounted rate can be as low as US$400 per ounce for gold and US$4.50 per ounce for silver. By way of comparison, the current spot price for gold and silver sells for US$1,325 and $16.40 per ounce, respectively.

Once any metals are purchased at those discounted rates, the streamer can sell those metals at the higher market rate, pocketing the difference. This can turn into an incredibly lucrative arrangement for the streamer, as gold prices have trended higher in recent months, and there’s nothing to stop a streamer from holding some of the gold purchased from the miner to wait for better prices.

Another key point that is often dismissed is diversification. Much like an investment portfolio, streamers can move on to the next project relatively quickly, leaving the day-to-day operations of the mine to the traditional miner. By way of example, Wheaton has over 20 active streams scattered across three different continents, with a further nine projects in development.

Is Wheaton a good investment?

I believe Wheaton is a great investment that can be summed up in three key points:

First, the diversification that I mentioned earlier doesn’t only apply to the mines that Wheaton is investing in, but also to the types of metals that are being extracted from those mines. Over the past few years, Wheaton has steadily upped the production of gold, which hit 355,104 ounces in 2017 with an average cost of US$395. Of those gold ounces, 337,205 were sold at an average market price of US$1,257.

As the additional projects come online, expect that figure to surge.

The second point has to do with dividends. Normally, miners offer a paltry static dividend that is barely worth mentioning. Wheaton, however, provides investors with a dividend that represents 30% of the average operating cash flow from the previous four quarters. At the current stock price, this comes out to a respectable 1.77% yield.

The third point has to do with gold prices. After several years of anemic growth, there is now a growing demand for gold coming from both investors as well as industry. China and India are showing increasing demand for gold jewelry, and a variety of political factors, ranging from Brexit to uncertainty in Washington, have long-time investors exiting the market and hoarding gold.

Industry pundits have targeted gold to hit US$1,400 or higher by the end of the year, which is not entirely out of reach. Should gold appreciate to that level or higher, streamers such as Wheaton could see even further profits.

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 Demetris Afxentiou has no position in any stocks mentioned. Wheaton Precious Metals is a recommendation of Stock Advisor Canada.

More on Investing

Money growing in soil , Business success concept.

The $3,000 TSX Investment Strategy for Ultimate Growth

Investors can allocate as little as $3,000 in three TSX growth stocks for massive capital gains.

Read more »

Dollar symbol and Canadian flag on keyboard

2 Dividend Stocks You Won’t Want to Miss

Scotiabank (TSX:BNS) and another top dividend payer have dividend yields north of the 7% mark going into December 2023.

Read more »

growing plant shoots on stacked coins
Tech Stocks

Get Rich Slowly: 1 Smart Stock to Leave in a TFSA for Years and Years

The TFSA isn’t only for short-term goals. With a little time, here’s how you can use stocks to get rich.

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, November 29

Mix commodity prices could keep the main TSX index flat at the open today, as investors watch the quarterly U.S.…

Read more »

a person prepares to fight by taping their knuckles
Dividend Stocks

TFSA Investors: 2 High-Yield Heavyweights Worth a Sizeable Investment

SmartCentres REIT (TSX:SRU.UN) and another high-yield heavyweight to buy now while rates and fears remain high.

Read more »

Growing plant shoots on coins
Dividend Stocks

Buy These 3 High-Yield Stocks With Healthy Payout Ratios

The payout ratio is a good way to understand a dividend-paying company’s financial stability, and it’s a good way to…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

Your Guide to the Best Monthly Dividend Stocks in Canada

Three of the best monthly dividend stocks in Canada have market-beating returns despite the elevated volatility in 2023.

Read more »

data analyze research
Dividend Stocks

Passive Income: How to Earn $1,191/ Per Year Tax Free

Make $1,191/year in tax-free passive income with these top TSX dividend stocks.

Read more »