Is Agnico Eagle Mines a Buy in July 2024?

Although quite a few gold stocks are worth looking into for their dividends, the less-than-modest capital-appreciation potential can be a deterrent.

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Gold retains its value, and it’s considered one of the most stable investment assets around the globe. This is one reason why its demand and prices go up whenever there is uncertainty in the market, like a war or a major market crash. However, despite its stability and occasional spikes, people rarely invest in the metal itself.

One of the most common ways Canadian investors gain exposure to gold is through gold mining stocks like Agnico Eagle Mines (TSX:AEM).

The company

Agnico Eagle Mines is a 67-year-old gold mining company headquartered in Toronto. Ironically, its roots are not in gold but in silver, nickel, and cobalt — the three metals this company focused on when it was founded. A merger in 1972 with a gold mining company broadened the company’s focus to include gold.

Today, it’s one of the largest gold producers in the world. It has 11 operations in four countries (Canada, Australia, Finland, and Mexico) and produced about 3.44 million ounces of gold and 2.41 million ounces of silver in 2023. This level of silver production also makes it one of the largest silver stocks in the country. The company also has massive gold and silver reserves at its disposal.

The stock

As a stock, Agnico Eagle Mines might not be as impressive as the underlying company. In the last five years, the stock rose by about 33%, but it wasn’t consistent. The stock fluctuated a lot over the last five years. It’s also quite overvalued right now, with a price-to-earnings ratio of about 69.5.

One redeeming aspect is dividends. The yield is about 2.4% right now, and it may not seem quite impressive, but the company has raised its dividends quite radically – almost five times in the last 10 years, though there hasn’t been any growth since 2022. The payout ratio is usually quite healthy, but it’s dangerously high right now.

While the stock started the year relatively slow, it has gone up quite a bit since mid-February, about 24% since the beginning of this year. However, there are two reasons why the current growth momentum might be running out. The first is that gold prices that were rising rapidly earlier this year are stagnant and may go down. The second is its dangerously high valuation.

Foolish takeaway

Considering the trajectory the stock is taking, it might be a good idea to wait to buy this stock. If it dips in July, you may have a chance to lock in a higher yield and even accumulate some growth when it rises again. However, a catalyst like uncertain geopolitical conditions may reignite the current growth momentum for gold and gold stocks like Agnico.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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