Whether or not you’re into investing, it’s likely you’re already semi-familiar with royalties. Royalties are essentially fees paid for the ongoing use of someone else’s property. This can include everything from books and patents to oil and gas.
So when it comes to royalty stocks, these can provide an interesting investment option. These companies provide upfront capital to mining companies to fund exploration or development projects, especially in the mining sector.
Compared to directly owning a mining company, they have less exposure to the risks associated with operating mines, such as fluctuations in operational costs or mine development issues. So if you’re looking for a safer option from royalty stocks, then I would kick it off with these three.
Freehold Royalties
First, let’s look at Freehold Royalties (TSX: FRU). Freehold concentrates on royalties from already established oil and gas properties, particularly in the Permian Basin of North America. This reduces risk compared to that of companies financing riskier exploration ventures.
Furthermore, these established properties tend to have lower operating costs and predictable production. This translates to a more reliable stream of royalty income for Freehold.
It also means the company has been able to secure a stable dividend. Freehold prioritizes returning a consistent dividend to shareholders, targeting a payout ratio of around 60% of its earnings. This can be attractive for income-oriented investors seeking regular returns. And right now, it offers a substantial 7.8% dividend yield.
Wheaton Precious Metals
Another strong option to consider is Wheaton Precious Metals (TSX: WPM). WPM deals exclusively with precious metals, primarily gold and silver. These commodities tend to hold their value well over time and can even act as a hedge against inflation. When gold and silver prices rise, WPM profits significantly due to their low-cost metal acquisition. This offers significant upside potential for investors.
The company concentrates on securing agreements with established mines with low operating costs and long mine lives. This reduces risk compared to companies financing riskier ventures. WPM provides upfront capital to miners in exchange for the right to buy gold and silver at pre-determined prices, often below market value. This locks in profit margins when they sell the metals at market price.
Now, WPM has a diversified portfolio of streaming agreements across multiple mines, reducing their reliance on the performance of any single operation. And with a solid 1.1% dividend yield, it can be quite attractive for investors.
Osisko
Finally, Osisko Mining (TSX: OSK) is great for investors seeking more focus on gold from their royalty companies. Unlike some royalty stocks with global reach, Osisko concentrates on royalties from mines in North America, particularly Canada. Canada has a stable political climate and well-established legal system, reducing risks associated with operating in some riskier jurisdictions.
Again, Osisko’s portfolio primarily focuses on gold royalties, offering exposure to a precious metal known for its ability to hold value and potentially act as a hedge against inflation. Osisko holds over 135 royalties, streams, and off-take agreements. This reduces reliance on any single mine’s performance. Notably, they have a significant stake (5% net smelter return) in the Canadian Malartic mine, the largest operating gold mine in Canada.
Finally, Osisko looks to organically grow its asset base by 10 to 12% annually. This can be achieved through strategic acquisitions of new royalties or streams, without the high upfront costs of developing new mines themselves. Now here the company is focused more on growth, so there isn’t a dividend yield currently. But stick around. You could certainly be in for one in the future.
