Investing in precious metals such as gold can help Canadians diversify their portfolios and lower overall risk. Right now, gold prices are trading near fresh all-time highs due to a combination of factors, such as geopolitical tensions, lower interest rates, and a sluggish global economy. Historically, the yellow metal has showcased an ability to deliver inflation-beating returns to long-term investors, making it an ideal investment in October 2024.
One easy way to gain exposure to gold is to invest in quality mining stocks such as Barrick Gold (TSX: ABX), Kinross Gold (TSX: K), and Franco-Nevada (TSX: FNV). Let’s see why.
Barrick Gold stock
Valued at $47 billion by market cap, Barrick Gold is engaged in the exploration, development, production, and sale of gold and copper. An increase in production and higher prices have allowed Barrick Gold to increase its revenue by 9.8% year over year to US$11.83 billion in the last 12 months.
In the June quarter, Barrick Gold increased gold margins by 39%, while copper margins more than doubled compared to the first quarter (Q1) of 2024. Its adjusted earnings rose by 68%, and higher cash flows were used to lower the net debt by 12%.
Analysts tracking the gold mining giant expect adjusted earnings per share to expand from $1.15 per share in 2023 to $1.62 per share in 2024 and $2.09 per share in 2025. So, priced at 13 times forward earnings, ABX stock is quite cheap given its earnings growth estimates and a dividend yield of 2%.
Analysts remain bullish and expect the stock to gain over 20% in the next 12 months.
Kinross Gold stock
Valued at $16 billion by market cap, Kinross Gold stock has returned close to 260% to shareholders in the past decade. If we adjust for dividend reinvestments, cumulative returns are much closer to 300%. Despite its outsized gains, Kinross Gold trades at a forward earnings multiple of 15.3 times, which is reasonable.
In the June quarter, Kinross Gold produced 535,338 gold equivalent ounces with a cost of sales of US$1,029 per ounce and an all-in-sustaining cost of US$1,387 per ounce. Kinross’s margin growth outpaced the rise in the average realized gold price.
Kinross reported an operating cash flow of US$478 million and a free cash flow of US$346 million in Q2. The gold miner also pays shareholders a quarterly dividend of $0.04 per share, indicating a forward yield of 1.25%. With a payout ratio of less than 20%, Kinross Gold has the flexibility to easily grow its dividends and enhance the yield at cost over time.
Franco-Nevada stock
The final gold stock on my list is Franco-Nevada, a gold-focused royalty and streaming company. It manages a portfolio of precious metals, such as gold and silver, as well as commodities, including oil, gas, and natural gas liquids.
Franco-Nevada is among the largest royalty companies globally, valued at $32 billion by market cap. Its asset-light model allows the company to benefit from elevated profit margins and high operating leverage.
Franco-Nevada has a diverse royalty and streaming portfolio by asset, operator and country. Armed with an attractive mix of long-life streams and high optionality royalties, Franco-Nevada also trades at a 20% discount to consensus price target estimates right now.
