Precious metal investments are finally more than just shiny things. In 2020, gold prices finally broke through and remained over the US$1,500-per-ounce price. Not only that, earlier this year, we saw gold prices hit their highest point yet, surpassing the previous high set in 2011. With strong demand leading into the end of 2020, let’s take a moment to mention two precious metal stocks for 2021.
How about a non-miner?
When it comes to precious metals stocks, we often gravitate towards traditional gold miners. While there’s nothing wrong with that view (more on that in a moment), let’s begin with Wheaton Precious Metals (TSX: WPM)(NYSE: WPM).
Wheaton isn’t a traditional miner. Instead, Wheaton is what is known as a streamer. Streamers provide upfront capital to traditional miners who set mines up for operation. In exchange for that initial financial muscle, streamers can purchase precious metals produced by the mine at discounted rates. Once purchased, the streamer can then sell those metals at the going market rate.
Just how significant is that discount? It can be as low as US$400 per ounce for gold and US$4.50 per ounce for silver. Adding to that appeal is the risk or lack thereof in the streaming model. Once streamers provide that upfront injection, they can move on to the next mine. More importantly, this means that the streamer leaves the day-to-day operations to the traditional miner. In the case of Wheaton, the streamer boasts a portfolio of 20 active mines on three continents.
Turning to dividends, Wheaton pays out 30% of the average cash generated during the previous four quarters. In the most recent quarter, this amount to $230 million and rises to $550 million over the full fiscal year.
Or maybe something more traditional?
A more traditional gold miner to consider is Barrick Gold (TSX: ABX)(NYSE: GOLD). Barrick is one of the largest miners on the planet, with ongoing operations in 13 countries on four continents. Unlike Wheaton, which invests in projects and then moves on, Barrick’s model is dependent on running mines at peak efficiency. In short, the more efficient that Barrick is in producing metals from its mines, the more profits the miner will earn.
Another key factor is volatility. Investors move to precious metals in times of volatility, which drives prices up. 2020 has been full of volatility, and Barrick has shot up over 20% this year. Much of that volatility is coming from the uncertainty around the COVID-19 pandemic.
This was reflected in the most recent quarterly earnings announcement. During that quarter, Barrick saw operating cash flow come in at an incredible 80% jump to US$1.9 billion. Additionally, Barrick also saw a record free cash flow generation of US$1.3 billion in the quarter. Like Wheaton, Barrick offers investors a quarterly dividend, which currently works out to a respectable 1.56% yield.
November was full of positive vaccine-related news. Unfortunately, the reality of the time and logistics needed to inoculate the entire planet is setting in. In other words, the volatility we’ve seen will persist and continue to fuel your precious metal stocks for 2021.
Picking your precious metal stocks for 2021
No stock is without risk. Both Wheaton and Barrick offer investors something unique to investors. Gold stocks have traditionally been viewed as stores of wealth. This is particularly true during times of volatility, which we’ve had plenty of in 2020. Fortunately, the long-term potential of both stocks is not tied to speculation. Both stocks boast impressive growth prospects and dividend potential. In short, either stock would do well as part of a well-balanced portfolio.
