Gold holds its value over time and is quite resilient against weak economies and markets, which is one of the reasons why many investors try to keep at least some part of their portfolio anchored in this asset.
The preferred method for most Canadian investors is gold mining stocks, as they dominate the precious metal segment of the market. However, there is another form of gold stock, that is, gold royalty and streaming stocks. The primary example in Canada is Franco-Nevada (TSX: FNV).
It’s one of the few dividend aristocrats in the materials sector, but dividends are just one of the many reasons you should consider this stock in your portfolio.
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The company
Franco-Nevada is one of the world’s most prominent gold royalty and streaming companies. The royalties business typically focuses on getting a cut of the revenues for an investment. Streaming works differently.
It’s the right to buy gold produced by a company at a specific price. As a royalty and streaming company, Franco-Nevada has access to both the asset itself (gold) and revenues generated by various gold businesses.
Its asset and portfolio diversification are also important factors to take into account. While gold makes up the largest slice of its revenues, it has various other commodities, not just precious metals. About 25% of its revenues come from other mining products and energy (oil, gas, and natural gas liquids).
It has a massive portfolio of assets, including 430 companies, only 118 of which are in the production stage, and a large segment, that is, 271, is in the exploration stage of operations. This promises a healthy future when more of the company’s portfolio will be in the production stage, increasing both its revenue and direct metal holdings.
Is Franco-Nevada’s dividends worth considering?
If you go by the yield alone (1.2%) and compare them to most other aristocrats, then the dividends are not worth considering.
They are compelling for different reasons, like the stellar history of 15 years of consecutive growth, as well as the rock-solid payout ratio. But that doesn’t make up for the fact that in the last 10 years, the dividends only managed to bump 210% capital appreciation to about 250% (total returns).
Ironically, the 1.2% returns reflect a significant markup from its usual yield as the stock is in the bear market phase right now and trading at a discount of about 23%.
Foolish takeaway
Franco-Nevada may not be an excellent buy for its 1.2% dividend yield, but it is a decent buy right now in its discounted state, thanks to its long-term growth potential. If it manages to replicate its growth in the last 10 years, it may triple its capital in the next decade. It’s also far more stable than gold mining stocks, and even its bearish phases are relatively less devastating.
