When market volatility hits, investors turn to what are viewed as safer investments, such as precious metals. And while there’s no shortage of Canadian mining stocks to choose from, the best option for investors isn’t even a miner.
Instead, prospective investors looking to diversify their portfolios should opt for a precious metal steamer.
What’s a streamer, and why does it matter?
Precious metal streamers don’t actually own any mines. Instead, streamers will provide upfront capital injection to traditional miners. The traditional miners will then set up the mine and begin operations.
In exchange for providing that upfront investment, streamers are permitted to purchase a certain amount of the metals produced by the mine at highly discounted rates. The streamer can then choose to hold or sell those metals at the market rate.
As for that discount, it can be very substantial. Specifically, streamers can often purchase gold for as low as US$400 per ounce, and silver for just US$4.50 per ounce. By way of comparison, the market rate for gold and silver (as of the time of writing) is US$1,970 and US$24, respectively.
Apart from that lucrative discount, streamers also offer investors another important advantage over their traditional peers. Because streamers don’t operate the mine directly, they can remain somewhat distanced and move on to procure other streaming contracts.
This makes streamers a flexible, lower-risk option when compared to traditional miners, and that includes some of the largest Canadian mining stocks.
What streamer should you invest in?
The streamer for investors to consider right now is Wheaton Precious Metals (TSX:WPM). Apart from the advantages outlined above, Wheaton also benefits from operating a well-diversified portfolio and a juicy dividend.
If that’s not enough, Wheaton also boasts a mature stream that comprises a variety of precious metals, adding to that diversification factor. Specifically, Wheaton boasts streams that produce gold, silver, palladium, and cobalt.
To say that Wheaton is well diversified would be an understatement. The streamer boasts a global portfolio of 19 active mines on three continents, and a further 13 projects in the development pipeline.
Wheaton provides a quarterly payout that is based on cash generated over the trailing four quarters. Currently, that yield works out to 1.39%, which isn’t the highest return, but it is well covered and compares with other Canadian mining stocks.
In terms of results, Wheaton is due to release an update for the most recent period in August. Until then, let’s turn back to the most recent update from May.
In that first fiscal of 2023, Wheaton reported US$214 million in revenue and announced a cash balance of US$800 million. The company also noted that as of the end of the first quarter, it had no debt.
Overall, Wheaton reported US$111 million net income for the quarter.
Wheaton isn’t your average Canadian mining stock
Investors continue to flock to precious metals thanks to market volatility. But that doesn’t mean that Wheaton and other Canadian mining stocks are without risk.
This is why Wheaton, in my opinion, should comprise a small part of a much larger, well-diversified portfolio.
