Looking for a safe and stable, cash-gushing dividend stock? There are many out there to consider, but what if you could get in on a growth industry without the risk?
That’s what’s on offer from investing in Franco-Nevada (TSX:FNV). The dividend stock has built a strong reputation, offering investors stable income with its unique royalty and streaming business model. So let’s get into why it’s one of the best buys on the TSX today.
Streaming model
The company doesn’t operate mines itself but instead receives a portion of the revenue or gold output from the mines in which it has invested. This asset-light model helps FNV generate significant cash flow with limited exposure to operational risks that other mining companies face. As of its recent earnings, Franco-Nevada’s revenue for the second quarter of 2024 was US$260.1 million, down from US$329.9 million in the same period last year. Despite this dip, FNV continues to deliver strong dividends, thus making it a reliable choice for income-focused investors.
Management’s strategy has been key to this stability. Franco-Nevada’s CEO, Paul Brink, has emphasized the importance of diversifying the company’s portfolio, particularly with recent acquisitions and its focus on renewable energy. While much of its income comes from gold, which has performed well recently, FNV has strategically moved into energy and other commodity streams. This could provide growth in the long term. Moreover, the company’s debt-free balance sheet and strong cash position of US$1.4 billion give it a cushion to continue returning cash to shareholders through dividends.
Offering value
Although FNV has seen some stock price decline this year, down about 10.7% over the past 52 weeks, this is largely due to macroeconomic factors. These include declining gold production at some of its key operations and overall weaker commodity prices. Plus, the halt of production at Cobre Panama impacted revenue significantly. These operational challenges explain part of why FNV’s stock is currently trading below its 52-week high of $194.61.
Still, Franco-Nevada’s management remains confident about the company’s future. The recent record gold prices have given the company some relief, helping them maintain an impressive cash margin of nearly 89% in the last quarter. As new mines come online and production at existing operations stabilizes, FNV is expected to recover from its recent earnings misses. Analysts predict earnings growth of 12.6% next year. This could help boost investor confidence and potentially push the stock price upward again.
Foolish takeaway
Looking ahead, Franco-Nevada’s mix of diversified assets, including its move into energy royalties and increasing exposure to renewable energy, positions it well for long-term growth. While recent earnings were below expectations, the company’s underlying fundamentals remain solid. The gold streamer boasts significant free cash flow generation and a history of increasing dividends, including a 5.9% bump earlier this year.
All considered, Franco-Nevada continues to be a cash-gushing dividend stock due to its solid business model and strategic focus on royalties and streaming. Even though its stock price has faced headwinds, the company’s strong balance sheet, diverse portfolio, and potential for growth make it an attractive long-term investment for those seeking both income and exposure to the commodities market.
